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Private Mortgage
Private Mortgage Insurance
Private mortgage insurance can be a benefit to every borrower.
However, borrowers need to be cautious when entering into
agreements which include private mortgage insurance. Mostly,
private mortgage insurance is actually designed to benefit the
lender--like most lending practices--and may go too far if
borrowers don't proceed with caution. How can private mortgage
insurance be a benefit to borrowers and when does it become a
burden? Some of the answers to these questions can be found in
the following article.
What is Private Mortgage Insurance?
Private mortgage insurance is insurance that is required of
borrowers that cannot afford to pay a 20% (or more) down
payment. The insurance is designed to protect lenders from the
possibility of default and costs on average about $50-80 per
month. The insurance can be beneficial to borrowers--as you will
notice in the next paragraph--but may become more of a burden
than a benefit if borrowers do not proceed with caution.
How Will Private Mortgage Insurance Benefit the Borrower?
Private mortgage insurance allows low income borrowers--or
borrowers who do not have a large amount of readily available
income--the chance to purchase a home when they can only afford
to put down a very small percentage on their purchase. This
allows them to not only live in a home, but to build equity and
enjoy the benefits that come with homeownership. These benefits
are great and can be a wonderful way to purchase a home however
there are some things that potential borrowers should watch out
for, so that their benefits don't turn out to be their
burdens?
The Downside to Private Mortgage Insurance: What You Can Do
to Avoid It
The downside to private mortgage insurance is that you can get
stuck paying it for much longer than you might have expected. In
1998, the Homeowners Protection Act demanded or mandated
that every homeowner who paid his or her mortgage down to the
80% level would have the right to request that his or her
private mortgage insurance be discontinued. The law also
mandated that once the owner had paid the mortgage down to the
78% level, then the discontinuance of the private mortgage
insurance must be automatic.
It seems like the Homeowners Protection Act has taken
care of a lot of headaches, right? The answer to that question
is that YES, it has worked to protect homeowners, although the
law is only applicable to those who make a purchase of their
home on or after July 29, 1999. So, what are the options for
homeowners who purchased their homes before that date? And what
about those homeowners who are working to pay down to the 78%
level, but find that it is taking a long time (i.e. around 10
years) to do so? Some experts say that rising home prices may be
the answer to some homeowners' woes.
Rising Home Prices: An Answer to Your Private Mortgage
Insurance Woes?
This may not be the best solution for you and your family but
many homeowners find that taking advantage of the rising costs
of homes is the way that they can get rid of their private
mortgage insurance. How do they do this? First they come up with
a small down payment and secure a loan with private mortgage
insurance. Then, after they own the home for a little while and
the home rises from about 12 to 20% in value, they can refinance
their home with a typical mortgage and get rid of their private
mortgage insurance. This doesn't mean that the rising prices for
homes are a good thing. Many homes will often be unaffordable
even with mortgages offered with private mortgage insurance.
However, the 'rising home price' option does exist and borrowers
should always be aware of their options.
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