The Definition of Insurance

If your payment on a house is less than 20 percent of the appraised value or selling price, you must obtain private mortgage insurance, known as PMI with the lender. This enables you to get a mortgage with a lower installment because the lender is now protected against any errors in the loan.

PMI charges vary depending on the size of the payment and the loan, but generally equal to half of 1 percent of the loan, according to the Mortgage Bankers Association of America. Mortgage insurance premiums are not deductible.




Example
Let's say you spend 10 percent or $ 10,000 on a $ 100,000 home. The lender multiplies the 90 percent of the loan, or $90,000, with 005. The result is an annual PMI of $ 450, which is divided into monthly payments of € 37.50.
Most home buyers need PMI because 20 percent of the selling price of a house is a lot of money, for example, that $ 20,000 on a $ 100,000 home. Home buyers should keep small until they cross that awards one-fifth of the key threshold, a process that can take years of long-term loans.

Tips
Keep track of payments on the loan. When you reach the point where the loan to value hits 80 percent lender announced that it is time to stop the PMI premiums. The testimony Protection Act of 1998, which came into force in 1999, requires companies to inform the buyer to complete and how many years it will take months to reach the level of 80 percent and cancel the PMI. Lenders must cancel PMI when the balance 78 per cent.

Note: The law does not allow lenders to continue to all small businesses that require up to 50 percent equity for so-called high-risk material borrowers. Traditionally, these loans are considered risky include reduced documentation loans, where customers provide less proof of income and other data during the approval process. Loans for people with SPOTTY credit histories and higher debt to income also fall into this category. Moreover, some FHA loans require payment of PMI throughout the loan.

Ways to avoid PMI
On the market today, there are new ways to avoid mortgage insurance, even if you do not have to pay the normal 20 percent.

Pay more interest: Some lenders waive the requirement for mortgage insurance, if the buyer accepts a higher interest rate on home loans. The increase in general is between 1 and 75 one hundred percent, depending on the payment. The advantage is that mortgage interest tax deductible. (Use the mortgage calculators to see what would be your payment.)

Using an "80-10-10" loan: This program is involves two loans and a 10 percent payment. 90 percent funded with a loan a first mortgage equal to 80 percent of the sale, and a second mortgage for the remaining 10 percent of the sale. The second mortgage has a higher interest rate, but since it applies only to 10 percent of the total loan, monthly payments on both mortgages are still lower than paying a mortgage with Mortgage Insurance. Plus, again, there is the advantage of mortgage interest be tax deductible.

Example: If you compare buying a house $ 100,000 under the "80-10-10" plan with a standard fixed mortgage including PMI, we find that the first is $ 17.45 cheaper per month.

Here's how it works. Under the "80-10-10" plan, 10 percent tranche of $ 100,000 home is $ 10,000. The first mortgage is for $ 80,000 at 7.50 percent, which comes to a monthly payment of $ 559. The second is $10,000 mortgage at 9.50 percent interest rate, to a monthly cost of $ 84. Total monthly payments of two loans: $ 643.

With a $ 10,000 payment, a mortgage of € 90,000 at 7.50 percent has a monthly payment of $ 629, plus PMI of $ 31.45 for a total payment of $ 660.45.

--- Source: www.bankrate.com ---

Related articles:

• What is Insurance?
• Do I need Insurance?
• The Big part of Insurance