Mortgage Insurance - What Is It, And How Can I Save The Most Money?
by Steve Hoogenakker
Do you know what mortgage insurance is? Many people confuse mortgage
insurance with mortgage life insurance, mortgage disability insurance, or even
homeowners insurance. These are all very different types of insurance - no
wonder there is such confusion! Mortgage insurance is generally required when
the down payment on a home is less than 20%, and it is designed to protect the
lender in the event of loan default. The lower the down payment, the higher the
risk for the lender, and this can mean a higher monthly mortgage insurance
premium. Depending on the specifics of your information, there are ways in which
mortgage insurance can sometimes be avoided at the time of purchase, or dropped
altogether at some point in the future. Many lenders now offer a single loan
that doesn’t require Mortgage Insurance. These generally have a slightly higher
rate. If you have to choose, which one is best for you?
Lets look at one home purchase with three scenarios
$200,000 home
$180,000 loan (with $20,000 down)
Scenario A
One loan WITH mortgage insurance
Payments of $1,320.00 plus
mortgage insurance payments of around $80.00 per month for a total of
$1,400 per month
Scenario B
One loan WITHOUT mortgage insurance (8 ½% rate)
Payments of
$1,384. $16.00 cheaper than using mortgage insurance,
Scenario C
Two loans. First mortgage up to 80% of loan value and Second
mortgage of 10% of mortgage.
First mortgage of $160,000. Payments of $1,174
(8%)
Second mortgage of $20,000 Payments of $ 175 (10%)
Total payments for
Scenario 3 is $1,359
In these three scenarios, Scenario C is the most cost effective. If you
really want to dig into the numbers, there is one other comparison to make:
In Scneraio A with mortgage insurance, at some point in the future, you’ll
be able to remove the insurance once the loan to value is clearly under 80%. It
may require a new appraisal which you’ll have to pay for, and approval of the
new appraisal by the lender, which isn’t automatic. The counterpart to that
equation is that in Scenario C, you can pay down the second mortgage at a fast
rate. As soon as that second is paid off, you’re left with a mortgage payment of
$1,174!
If you have a specific situation you’d like us to figure out for you, please
contact us at steve@mrhomeloan.com or call Bob Carver at 612-363-1279.
www.mrhomeloan.com
Steve Hoogenakker is a mortgage and finance provider that collects valuable
information for people and offers most of it at no cost as a public service. He
has different websites with thousands of articles to view and download. Steve
would be happy to speak with you about you about your financing needs or
questions.Here are some links to get that information: http://www.mrhomeloan.com/articles/index1.html or http://www.homeseller.pro You
can also reach steve at steve@mrhomeloan.com or reach Steve or
Bob by phone at 612-363-1279.ATM Mortgage and MrHomeLoan.
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