What is private mortgage insurance and why is it required?Private mortgage insurance (PMI) is insurance written by a private company that protects the lender from losses in the event the borrower defaults on his or her mortgage. Borrowers are required to pay the premium for private mortgage insurance. Even if you have a good credit rating, lenders still generally require private mortgage insurance if you make a down payment of less than 20%. Without mortgage insurance, the lender could be subject to considerable financial loss so to limit their risk, private mortgage insurance is required for all conventional loans with less than a 20% down payment. As an alternative, the blended mortgage has been popular for some time. This is a combination of a 1st mortgage and a 2nd mortgage. Since MI is only a factor for a 1st mortgage, that 1st mortgage is typically 80% of the purchase or refinance amount, satisfying the 20% "equity" required to avoid mortgage insurance. The 2nd mortgage is typically 10% or 15% of the purchase or refinance amount. The blended mortgage avoids MI with as little as 5% down, usually with a lower payment than with just 5% down and mortgage insurance, and with a better tax benefit (the interest on the 2nd mortgage is also deductible, but MI is not). |
We Say "YES" When Others Say "No" 857-205-1068 Centurion Funding Corp. of America 162 East Main St. Avon, MA 02322 |
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