Mortgage insurance tries to shake piggybacks |
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Don't count on your mortgage professional to be aware
of this. Bankrate asked a mortgage broker and a loan officer to
compare 80-10-10 piggybacks with loans for 90 percent of the home's
value with mortgage insurance. In the scenarios they provided, the
piggybacks had lower monthly payments. But lenders considered only
one type of mortgage insurance: the kind with monthly premiums.
Two other types of mortgage insurance finance the premium upfront,
often yielding lower monthly payments.
"Mortgage insurance is a really good alternative now for consumers," says Janet Parker, senior vice president of PMI Group, one of the largest mortgage insurers. "What we're trying to do is ensure that brokers and Realtors understand what the options are."
The three big mortgage insurers -- PMI Group, Genworth and MGIC -- all have links on their Web sites to calculators that let prospective borrowers plug in loan numbers and compare various combinations of piggybacks and mortgage insurance offers.
To summarize one scenario, someone putting 10 percent down on a $250,000 house would end up paying $1,452 a month in principal and interest for a 6.5 percent mortgage in which the $4,725 premium is added to the loan amount. The monthly payment would be the same for a piggyback with a $25,000 home equity line of credit at 9 percent. That payment could go up or down, depending on what the Fed does to interest rates.
In other options under this scenario, the monthly bill is
$5 more for using a piggyback with a fixed-rate home equity loan
at 8.55 percent, amortized over 30 years. The most expensive option
would be the one with traditional borrower-paid monthly mortgage
insurance: $1,520 a month.
None of these scenarios takes potential tax deductions
into consideration.
Lender-paid insurance
There is one more option: lender-paid mortgage insurance. The best-known
such product is MGIC's
SingleFile, which adds a quarter-point to half-point to the
mortgage interest rate. This type of insurance has the virtue of
being tax-deductible, unlike other mortgage insurance premiums.
During the real estate boom in the first five years of this century, mortgage insurance had one advantage: If your home appreciated in value quickly, you could cancel the mortgage insurance policy after two or more years. As the pace of home appreciation cools, such policy cancellations will become rarer. But they are still available, both with monthly payment and single-premium policies.
When a policy is canceled under a traditional monthly payment plan, the payments simply stop. When a single-premium policy is canceled within the first five years, the borrower may receive a prorated refund.
Competitive monthly payments plus the ability to cancel
a policy are compelling reasons to consider single-premium mortgage
insurance. But the word hasn't got through to all loan officers
and brokers, many of whom have been in the business for just five
or six years -- and during most of that time, piggybacks clearly
were the better option. "They just take it for granted that the
combo loan is the best option for the buyer," says Julie Beauvais,
spokeswoman for Genworth. "But the popularity of mortgage insurance
is growing."
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