Mortgage Insurance – How to eliminate it or at least reduce it
No home buyers like Mortgage Insurance (MI) but there are ways to stop it or at least make it less off-putting (for clarity, the focus of this is Conventional loans).
- Home Equity Line of Credit (HELOC) Second: These seemed to be on EVERY loan during the Boom. It’s still available and you can have a $0 MI loan with 10% down as well as one with just 5% down. If you’re not familiar with it, basically the borrower puts 5% (or 10%) down, the lender will do a loan for 80% and get a home equity line for the remaining 15% (or 10%). Then magically… NO MI…ever!
- Lender Paid MI: Yep, some lenders will pay it for the life of the loan at closing. There is a rate adjustment to cover the cost so it’s not “free” but it’s also not uncommon for the total Principal, Interest, Taxes, Insurance (PITI)payment to be lower even with the slightly higher rate.
- Financed MI: The MI can be financed into the loan amount and thus amortized over the life of the loan. This reduces the payment by stretching the time frame. Minimal downside…Depending on how long you keep the loan/house, it could cost more over time but a reakeven point can be easily calculated to see at what time it becomes more costly.
- Lump Sum MI: The borrower pays the entire MI premium at closing out of pocket, this one is probably the least enticing but with a combination of lender credits and seller-paid closing costs it can work out so that the buyer gets off with very little out of pocket and again has a lower monthly payment.
- Don’t forget: MI is still an allowable tax write off for most borrowers. (I’m no CPA, so check with one first since tax laws do change).
My Two Cents: A the risk of jinxing it, rates held strong to the lowest level we’ve seen in months during the shutdown and have inched even lower over the past 24 hours since a deal was agreed upon. We’re back in the high 3’s for government loans and low 4’s for conventional loans. I say it’s time to lock if you’re under contract as the upside risk outweighs the likelihood of further improvements.
- 30 Year Fix Rate is 3.75% (1 origination and 0 disc pts) – APR – 4.38
- 30 Year Fix Rate is 3.875% (0 origination and 0 disc pts) – APR – 4.5%
- FHA 203K – Rehab Loan
- 30 Year Fix Rate is 4.375% (1 origination and 0 disc pts) – APR – 5.09%
30 Year Fixed Rate 4.25% (1 origination and 0 disc pts) – APR – 4.8
30 Year Fixed Rate 4.375% (0 origination and 0 disc pts) – APR – 4.93%
15 Year Fixed Rate 3.375% (0 origination and 0 disc pts) – APR – 4.11%
5/1 ARM is 3.375% (0 origination and 0 disc pts) – APR –4.39%
The Big Easy- Jumbo Loan
- 30 Year Fix Rate 4.875% (0 origination and 0 disc pts) – APR – 5.81%
- 15 Year Fix Rate is 4.25% (0 origination and 0 disc pts) – APR – 5.1%
- 10/1 ARM 4.25% (0 origination and 0 disc pts) – APR – 4.73%
- 5/1 ARM 3.375% (0 origination and 0 disc pts) – APR – 4.187%