Home Loans
Private Mortgage Insurance Explained
(presented by www.refinance-refinance.net - mortgage lenders)
By RJ Baxter
Private Mortgage Insurance, or PMI, is one of the most commonly misunderstood concepts in the mortgage industry. So what is PMI?
In short, PMI is an insurance policy for which you as the homeowner pay the premium each month, but it doesn’t benefit you at all. This insurance policy insures the lender in case you don’t make your payments and go into default. If this happens, PMI guarantees the lender that they will get their money.
PMI is required on any mortgage over 80% of the appraised value or sales price of the home.
But wait a minute, you say, that’s almost impossible these days. Who has 20% down to put into a house?
Well, the good news is that there is a way around PMI. The way to avoid PMI is to take out a first mortgage for 80% of the value of the home with a second mortgage to cover the difference. In this way, you will achieve a lower overall payment, and greater tax deductibility of mortgage interest
Here is a simplified example of the benefit of structuring your mortgage with a 1st and 2nd mortgage, thus avoiding PMI:
With PMI:
Sales price: $250,000
1st Mortgage: $237,500
2nd Mortgage: N/A
Principal and Interest Payment: $1424
PMI Payment: $99
Total Payment: $1523
Tax Deduction: $392/ month
Without PMI:
Sales Price: $250,000
2nd Mortgage: $37,500
Principal and Interest Payment: $1455
PMI Payment: $0
Total Payment: $1455
Tax Deduction: $405/ month
As you can see, structuring your mortgage properly can have a huge impact on your monthly payment, tax write off, and bottom line.
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RJ Baxter has been a mortgage consultant for over four years. RJ utilizes his teaching background by educating consumers and advocating ethical business practices in the mortgage industry. RJ has received many awards for excellence and loan volume and ! |
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