What Is Single Payment Mortgage Insurance and Is It Right for You?

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Filed under: Market Comentary

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Home owners are always looking for a way to shrink their monthly mortgage payment, and one way that this can be done is to make a single , upfront purchase on your mortgage insurance. By doing this, the home owner would not have to pay their private mortgage insurance, or PMI, every month.

According to a recent article by Poonkulali Thangavelu of the Scripps Howard News Service, this option is not available on all loans. It is an option on a conventional mortgage loan that requires PMI, if you have less than 20% to put down as a down payment. Government programs, such as FHA-insured loans, VA or USDA loans are not available.

If a home owner decides to take this option, it could definitely save money. Thangavelu quoted Christian Durland, a senior mortgage adviser with Envoy Mortgage as saying, “Eight times out of 10, if you run a proper analysis, the single-premium mortgage always comes out as the less expensive option as long as you are going to be in the home for three more years.”

In addition, Thangavelu says that if a home owner decides to pay the PMI upfront, it would be an advantage because it helps reduce the debt-to-income ratio. By having a lower debt-to-income ratio, specific borrowers would be able to qualify for a bigger loan.

Thangavelu gives an example, for instance, on a $200,000 mortgage with a 10% down payment. The PMI usually will cost the borrower about $81.67 per month. With the single-payment mortgage insurance, the borrower would actually pay an upfront premium of 1.37%, which computes to $2,740. The overall monthly payments would “exceed” the upfront premium two months shy of three years, for a “break-even” of 34 months.

Thangavelu also quoted Durland as saying, “Making a one-time, upfront mortgage insurance payment saves the hassle of refinancing if there is no other rationale. For example, if [a home owner has] enough for a 15% down payment, you could put 10-12% down instead, pay for upfront PMI, and not have to watch your home’s value to cancel monthly mortgage insurance after your equity exceeds 78%.”

If you think this might be an option for you, or if you have any questions about the mortgage business, please give me a call and we can discuss all of your questions.

Source: http://www.kitsapsun.com/news/2013/dec/12/whats-single-payment-mortgage-insurance/#axzz2nvz4Z2o5

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