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Mortgage Insurance: Loans
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Some lenders offer low down payment loan products that don't carry mortgage insurance. The most typical is the piggyback loan... known as the 80/10/10. The piggyback stacks a high-rate small second mortgage on top of a lower-rate first mortgage. For most consumers, the piggyback can have several drawbacks, including higher monthly mortgage costs, a balloon payment and loss of financial flexibility. Click here to learn more.
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"We applaud this vote to support tax deductibility for mortgage insurance because it should help low- and moderate-income Americans secure sustainable mortgages that keep them in their homes and keep their communities strong," Smith said. "The median home price in the United States today is about $224,000, which means borrowers would need to save nearly $45,000 in order to make a traditional down payment of 20 percent. In today's market, where credit is hard to come by and home price appreciation is flat or declining, insured loans provide buyers with a simple, safe, and smart way to get into a home and start building equity."
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Mortgage insurance plays a crucial role in maintaining the stability and health of the mortgage finance system. With rising interest rates and slower appreciation of home prices, many people who used exotic loan structures are being surprised with higher monthly payments.
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Lenders make the arrangements for Mortgage Insurance coverage on loans. They often send a mortgage application to more than one insurance company. One company may approve an application, while another may not. If a company denies coverage on a loan, it sends a letter to the borrower explaining why. The lender, meanwhile, may have obtained coverage on the loan from another company.
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[M]any lenders offer lender paid mortgage insurance (LMPI) in exchange for a slightly higher interest rate. For a high loan to value (LTV) loan this can oftentimes make sense. The reason being that if you’re at 95% today it will be many years before you hit 80% and in that time you may move or re-finance the loan anyway. It then follows that paying a higher rate for LPMI makes sense. However, LPMI is not available to everyone, you must have good credit.
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Estimating the actual cost of mortgage insurance is not difficult. Swallowing it is another story. Assume you will have the loan at least 10 years. Divide your total loan by the additional loan (in this case, the 15 percent) then multiply it by the insurance premium (.79 percent). 95,000 divided by 15,000 gives you 6.33. When multiplied by .79 percent, you get 5 percent.
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