Hilde's Mortgage Blog

Did you know not all private mortgage insurance is equal?

In the face of all the tightening of lending restrictions, we are seeing finally some loosing of guidelines beginning at the private mortgage insurance front. With that in mind let's take a look at the various payment options for mortgage insurance. That's right, you do have options. Although once you have made your choice, it will remain in effect until the loan is paid off or no longer requires mortgage insurance. Within this short paragraph I alluded to three different and important aspects of mortgage insurance:

1. Private vs government insurance

2. Payment options

3. Deletion of mortgage insurance

So stay tuned for more details to follow in the next couple days.

Deleting your private mortgage insurance on conventional loans.

After you have been paying your loan balance down and your home's market value may have appreciated over time you feel that your current loan to value in now 80% or less. If you remember, that is the magic cut off where mortgage insurance is no longer required. It may be feasible that you can request your mortgage insurance payments to be dropped. You may need to prove the new value via paying for a new appraisal and your loan payments have to be kept current. Contact your servicer for more details when the time has come. This is just a brief outline.

Private must be canceled when the LTV is scheduled to reach 78% of the property's original value provided that the payments have been made on time. Again, contact your servicer when the time has come for more specific details. Not all loans or property types are affected by these rules.

For the government insured loans, FHA being the only type with monthly insurance premiums, have similar provisions. However, the monthly premium has to be paid for at least five years.

For more information just give me a call.

Why mortgage insurance?

It is required on residential mortgage if the down payment is less then 20 percent. In essence, it helps minimize one of the barrier to homeownership - cash to close.

There are Government insured or guaranteed home loans (FHA, VA, HUD184, USDA-RD -- more details on those later) with no or very low down payments; and conventional loans which are insured via private mortgage insurance companies with down payment requirements as low as five percent of the sales price.

When selecting a conventional loan with private mortgage insurance requirement, there are several payment  plan options as illustrated below.

The figures used in above example are for illustration purpose only. Actual premium percentages may vary. Changes to those plans may occur without prior notice.

In comparing the monthly payments you'll notice a difference of over $100.00 in your monthly payments.

Several considerations need to be made prior to the final selection. One, very important one, is the source of the upfront portion. Unlike government loans, the upfront portion is not necessarily financeable (added to the loan balance). Acceptable sources are: borrowers own verified funds, seller paid or lender paid via premium pricing (higher interest rate) or a mix thereof.  

Other considerations are the the anticipated length you plan on keeping the home and the loan. If you select premium pricing to keep you monthly payment low, that interest rate will remain in effect until the loan is paid off. However, when certain loan to value ranges are met the mortgage insurance can be removed from the loan at a later time. The makes it important to understand the longterm consequences of each plan and how it might fit your personal longterm financing goals.

Stay tune for the next update where talk about deleting mortgage insurance from your loan.