Most new home buyers are not even aware of private mortgage insurance until they have been told that they are paying for it. Private mortgage insurance is not for borrowers, it is for lenders.
Commonly referred to as "PMI" private mortgage insurance protects the lender in the event that you default on your mortgage loan before you finish paying it off. This figure is included in lenders mortgage loan calculations when determining how much money you can borrow on your home. The higher your down payment, the less likely your lender will be to request private mortgage insurance. Homeowners who have at least 20% down are not required to have private mortgage insurance.
PMI can be expensive, and the less money you put down on your home, the more it will cost you on a monthly basis. The rates are based entirely on the difference between the amount you put down on your home and the amount needed to reach 20% of equity. Your credit report has no bearing on your rate.
The Homeowner's Protection Act (HPA) of 1998 made it a rule that lenders notify borrowers when they have reached an equity level of 20% allowing them to cancel PMI. Automatic cancellation must be done when the loan to value ratio becomes 78% if not previously canceled.
There are a limited number of private mortgage insurance companies in the United States. However, this does not mean that you do not have choices. Lenders will require you to have private mortgage insurance (more commonly called PMI) if you are making a down payment of less than 20% of the value of a home. PMI is also required if you are refinancing a home and the loan to value ratio is higher than 80%.
Borrowers may be able to negotiate with their lenders and have them pay the cost of private mortgage insurance. Although this will result in a higher interest rate, this may be more affordable than the monthly premium that will need to be paid.
Borrowers should request a private mortgage insurance quote for monthly payments, annual payments and for PMI built into your interest rate so you can determine which private mortgage insurance plan will be right for you.
The ability to put down less than 20% of the value of a home is possible due to private mortgage insurance companies. Private mortgage insurance has made home ownership a reality for millions of homeowners.
If you have a home that is financed through a lending institute you will need to carry a home mortgage insurance policy on the home. The requirements vary between each company as to what dollar amount of insurance needs to be on the home but the minimum amount is typically the payoff of the home.
With many companies you are offered a discount for carrying multiple insurance policies including your home mortgage insurance, vehicle, RV, motorcycle and even your boat insurance. This is a benefit to both you and the insurance agent to have all of these policies bundled together. With the bundling of two or more of the policies as long as one of them is a home mortgage insurance you will see a substantial savings on your overall policy, typically at least a 20 percent savings.
A typical home mortgage insurance rate will vary slightly for many reasons including what part of the country you are located in and the value of your home, just to name a few. Contacting your insurance company for a mortgage insurance quote will be the best way to see what you can afford and what you need for your area.
If you are considering a second mortgage, you should first investigate mortgage loan rates. Sometimes it is better to consider refinancing your first mortgage rather than taking out a second mortgage. If you find that second mortgage loan rates are lower, then you can begin shopping around for the best second mortgage that you can obtain.
Some of the feature of the best second mortgage loans include no prepayment penalty, no balloon payments and no hidden costs. Beware of lenders who try to tack on additional insurance policies. While some of these policies may be inexpensive, chances are that you are not going to need them.
Second mortgage loan rates are generally lower than credit card rates and if you can find the best second mortgage available, it may be worth several hundred dollars in savings to pay off your high interest credit cards with a second mortgage.
Mortgage loan rates vary from institution to institution and will be based largely on your credit rating. If you have an excellent credit rating you should have no problem finding and getting approved for the best second mortgage available in your area. Check with your local bank, a credit union and a traditional mortgage lender before you sign anything to ensure you are getting the best second mortgage.
A second mortgage loan is secured by real property after a first mortgage loan has been taken out on your behalf. Then, the equity you have in your home is used as collateral for the second loan. Many do not like to deal with a second mortgage loan because it is second in priority after the first mortgage.
Second mortgage loans are often evident when one wants to cash out on their home equity. Common reasons why this happens are when one has accumulated a large amount of debt and needs to pay it off and to avoid paying private mortgage insurance. Those scenarios are the worst term ones. More logical solutions are when one wants to purchase something like a new car or if they want to remodel their home.
A second mortgage loan will allow one to borrow based on their home’s equity. Interest on a second mortgage loan will be much higher than a first mortgage loan. This is because of default, as since one is paying off their first loan before the second, a higher risk is involved in offering a second mortgage.
Selecting the best second mortgage lender for your particular situation requires a careful analysis of several factors. Each second mortgage is different, and you have to read through and understand all of the documentation before signing.
Check out the APR. Get interest rate quotes from several types of second mortgage lenders, and be sure to analyze the actual APR. Second mortgages can include a wide range of fees that will increase the APR substantially.
Be careful of default penalties. There can be huge fees for late payments or an increase in the interest rate, even for being one day late. Avoid a second mortgage with default penalties if you can.
The one certainty in life is change. Sickness, change in employment and opportunity for refinancing may require paying off the second mortgage. Some second mortgages have substantial prepayment penalties, and these should be avoided if possible.
Some second mortgages start with low monthly payments, but the payments increase substantially after a few years, or the total balance could become due. Be sure you read the details and completely understand the loan repayment schedule.
Use a second mortgage lender that you can trust, one who you feel is not holding anything back and is disclosing all of the costs.
|Jennifer Mathes, Ph.D.|