Should I be paying Private Mortgage Insurance?
Other than permitting someone the privilege of borrowing money - Private Mortgage Insurance(PMI) actually does little for Homeowners. The original intent was to expand the scope of home ownership beyond individuals who had 20% down payments. However, in these cash-strapped times, people with good credit scores view mortgage insurance either as a nuisance or a hurdle to home ownership. Even people that HAVE 20% to put down prefer not to part with that much cash. So the question is Why - Mortgage Insurance?
It is time to pose this legitimate question: is there a direct correlation between lower down payments and mortgage delinquencies? The stock answer is - Yes, just ask the mortgage insurance companies. But not so fast! Hundreds of thousand of loans that HAD MI went belly up. Taking a Bad loan and adding mortgage insurance does not make it better! Many of those loans should never have been made in the first place. The follow-up question that begs to be asked is: if a loan is good, will it perform better by adding an additional $100-$150 per month? I don't think so...
PMI is not a bad thing, but does it make sense? For some individuals - absolutely. It is the only option. However, there is another large group of clients that should be told about another existing option other than paying PMI. There is an additional option to be considered and here is why: if an individual already owns a home and is paying PMI and is making monthly payments on-time, who would refinancing out of PMI and dropping payments make the loan more risk? It doesn't. Dropping some one's payments is a good thing! Especially when clients can cut mortgage insurance AND reduce their interest rates!
Example:
A customer has a home worth $195,000. Their rate is 6%.
6% rate + PMI = Monthly payment of $1139
Let's say they refinance down to a lower rate with PMI.
4.25% rate + PMI = Monthly payment of $1056 (they save $83/month)
NOW...let's see what happens when we get rid of PMI altogether....
4.25% rate + NO PMI = Montly payment of $928/month (they save $211/month)
Which option would you rather take? I would take the $211 savings and get rid of MI altogether.
If I could be of service to you or someone you know in getting rid of their PMI, please get in touch with me. I'm happy to give you a complimentary comparison.
