One mortgage broker has strongly recommended a loan with PMI, allowing me to take a single loan for 90% of the home purchase price. Another broker dismissed the PMI as an outdated concept, but good faith estimates from both brokers are very close in terms of monthly payments. Does anyone have any experience or advice on 1loan+PMI versus 2loan options?
2006-08-02 20:59:58 · 7 answers · asked by GoldenGirl 2 in Business & Finance ➔ Renting & Real Estate
I usually recommend the the 2 loan option for tax purposes. You cannot deduct MI premiums off your tax return. but you can deduct the interest you pay on your second mortgage. This happens in most cases, but check with your tax advisor to confirm. Also, in most cases you may be able to refinance the second mortgage with out any pre-payment penalties.
However, there are new programs out there that simply roll the upfront MI premium into your loan amount so that you can get the best of both worlds. Ask your brokers if they have that option available.
The PMI does usually get you a lower rate and once your loan-to-value reaches 79% it is automatically dropped. However, as you noted: the monthly payments are very close for either option.
In a nutshell: If you plan on staying in this loan forever, then it makes sense to pay PMI. At some point the PMI will drop and you will have a fixed payment, assuming this is a fixed rate mortgage.
If you plan on refinancing in the future or selling your home, then you may want to try the 2 loan option.
Not very many people stay in their loans for 30 years any more...
Best of Luck!
2006-08-03 00:59:43 · answer #1 · answered by amkornele 3 · 2⤊ 0⤋
PMI is an insurance policy that you pay for that benefits the bank. It gets you the loan, but never anything else again. It doesn't even stop the bank from messing up your credit if you default.
PMI is very avoidable by splitting a loan into an 80% first and a second loan for the remainder. The second will be at a higher interest rate, but it saves you money as opposed to PMI, which is typically a supplemental percentage on the entire loan amount.
More information in this article:
http://www.danmelson.com/posts/1147461781.shtml
Still more here
http://www.danmelson.com/posts/1147461521.shtml
2006-08-03 03:29:15 · answer #2 · answered by Searchlight Crusade 5 · 0⤊ 0⤋
Hello,
Great question and great thinking on your part to check for alternatives in financing.
PMI helps home-buyers buy a home earlier without waiting for collecting the down-payment. Based on current environment, PMI should trigger in case the down-payment is 3 to 5% not the usual 20% (That's a very old convention).
I have helped several of my clients get a 80-10-10 (Technically they keep the down-payment at 10.1%) with a lower rate.
Having a 80-10-10 will also help you maintain a flexible structure in terms of refinancing the high cost portion of your mortgage.
In case both of your good faith estimates are almost equal, the one without PMI is better. PMI is not tax deductible. For example, let's assume you are paying a PMI of $300 and in the second good faith estimate you are paying an excess interest of $300. Since interest is tax deductible, you will end up paying $300-Your applicable tax rate. (This should generally be at least 25% on your annual amount). So you will end up paying $300-75 = $225. So you are saving $75 a month or $900 per year.
But based on the terms being offered to you, I think you need to shop harder for your mortgage.
Good luck in home buying.
Disclosure: I am a Licensed Realtor in Sunnyvale, CA.
2006-08-03 03:10:58 · answer #3 · answered by amolheda 3 · 0⤊ 0⤋
You have to pay PMI if you are putting less than 20% down. That being said, PMI is about $45 for every $100K of the loan......If you do a piggy back loan, 90% loan & a 10% loan, just be sure the monthly payment on the 10% loan is less than your PMI payment. W/ interest rates going up, it may be better to go w/ a traditional PMI.
2006-08-02 22:13:50 · answer #4 · answered by Paula M 5 · 0⤊ 0⤋
PMI doesn't benefit you, it benefits the bank giving you the loan. Either they'll give you a second loan at a higher interest rate (higher because of the risk involved for them), or they'll make you pay PMI so they're sure they make their money back.
Personally, I would send the GFE with the lower payment to the OTHER broker. Make him come down in fees a bit, then take his second offer...and remember to order the appraisal YOURSELF and then sign it over to the broker with the lowest costs once you sign the disclosures. It'll save you a couple grand, guaranteed.
2006-08-03 13:58:46 · answer #5 · answered by Jonathan S 2 · 0⤊ 0⤋
PMI is essentially you paying to insure the loan for the Bank.
And if its 100% insured, then why is the Bank still charging you such a high rate? Its a bunch of BS. Oh yeah, and if you add equity to your home or get a deal so that it already has 20% equity you still need the PMI. Friggin scam.
Look hard for a bank that will do a single loan without PMI. They exist, expecially for first time homeowners. Try FifthThird.
2006-08-02 21:06:05 · answer #6 · answered by Anonymous · 0⤊ 0⤋
Either go with the 2 loans 80-10-10 or you CAN do one loan w/out PMI.
There is no sense in paying it.
2006-08-03 00:05:27 · answer #7 · answered by staceydian 2 · 0⤊ 0⤋