Mortgage : Home Loans : Refinance : Home Equity Loans

By George Tesfa

Avoiding PMI Payments

The only way to avoid PMI is to make a cash down payment of 20% or more when you buy a house unless your mortgage is going to be origianted through a sub-prime lenders. This money may come from your savings or from a gift from a relative. You may also be able to borrow against your 401(k) retirement plan to raise the down payment needed. (However this option may have long term effects to your financial future and may not be your best option.)

In lieu of a 20% cash down payment, consider these options:

Private Mortgage Insurance (PMI)

While it increases your payment, PMI may in fact be your best option to obtaining a house. After all, PMI often can be canceled within two or three years and some PMI programs even allow you to collect a refund of some premiums upon canceling. PMI is especially attractive in areas where the property values are steadily increasing.

Lender-paid Mortgage Insurance (MI)

Another method of buying a house with less than 20% down is Lender-paid MI. With this MI program the lender pays for the MI premium while the borrower in turn often receives a slightly higher interest rate, usually a quarter-percent. While this slightly higher-interest rate is for the life of the loan, it often results in a lower monthly payment than taking out two loans (piggy back loans, described below), and reduces the costs of closing two loans. The interest paid on this slightly higher rate loan would be tax deductible. Lender-paid MI cannot be cancelled.

Piggy Back Loan A piggyback loan structure is another way to buy a home without making a 20% down payment and without mortgage insurance (MI). In effect, the borrower is taking out two separate loans - one

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For additional Mortgage Refinancing information
and resources visit Mortgage Refinancing.
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This entry was posted on Wednesday, October 25th, 2006 at 2:26 am and is filed under Refinance. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.