Presenting Your Private Mortgage Insurance Options

Those in the market for a new home must consider something aside from the type of loan they plan on taking out: Private Mortgage Insurance (PMI).

Lenders require PMI on mortgages loans where borrowers are financing more than 80 percent of the price. Unlike other types of insurance, PMI is designed to protect the lender - what if the borrower defaults on a payment? - not the person paying the premiums.

As explained by Bankrate, there are two types of PMI: borrower-paid and lender-paid. Borrower-paid PMI is by far the most widely used, but PMI companies are encouraging the use of lender-paid as an alternative to piggyback loans, which are popular with borrowers.

Here’s a rundown of PMI options:

• Borrower-paid PMI. The loan premium is added to the mortgage payment, while the mortgage company transmits the PMI payment to the insuring company.

• Lender-paid PMI. The payments are wrapped into the overall loan rate so you don’t make a separate PMI payment. Instead, you pay a higher interest rate and the lender pays a portion of your overall payment to the insuring company. The advantage of this type of PMI is that you can deduct the mortgage interest from your taxes. PMI isn’t deductible.

• Piggyback loan. Named because a second mortgage is “piggybacked” onto the original mortgage loan, a piggyback mortgage is a second mortgage that closes simultaneously with the first. There are variations, but a popular product is the 80-10-10 loan, where the consumer takes out an 80 percent first mortgage (thus avoiding PMI) a 10 percent second mortgage and pays 10 percent as the down payment.

Speak with our brokers and experts and learn more today.