Pay more interest
Some lenders will waive the mortgage insurance requirement if the
buyer accepts a higher interest rate on the mortgage loan. The rate
increase generally ranges from three-quarters of a percentage point,
or 75 basis points, to a full percentage point, depending on the
down payment. A basis point is one-hundredth of 1 percentage point.
Borrowers can benefit from this because mortgage interest is tax-deductible,
whereas mortgage insurance premiums aren't. But they'll end up paying
more interest over the lives of their loans due to the higher rates.
Use an 80-10-10 loan
This program involves getting two loans. The borrower gets a first
mortgage equal to 80 percent of the sale price, a second mortgage
for another 10 percent of the price and puts the remaining 10 percent
down at closing. The second mortgage has a higher interest rate.
But since it applies to 10 percent of the total loan, the monthly
payments on the two mortgages can still be lower than the monthly
payment on one home loan with mortgage insurance. Plus, interest
on the second mortgage is tax-deductible. The 80-10-10 loan isn't
the only plan available; borrowers can get 80-15-5 loans or other
By the numbers ...
If we compare
the purchase of a $150,000 home under the 80-10-10 plan to a standard
fixed mortgage including mortgage insurance, we find that the former
is $35.36 cheaper each month.
Here's how it works: Under the 80-10-10 plan, the
10 percent down payment on a $150,000 house is $15,000. The first
mortgage is $120,000 at 7 percent, which comes to a monthly payment
of $798.36. The second mortgage for $15,000 has a 9 percent interest
rate, making a monthly payment of $120.69. The total monthly payment
for both loans is $919.05.
With a $15,000 down payment, one mortgage of $135,000
at 7 percent has a monthly payment of $898.16, plus mortgage insurance
of $56.25, making a total payment $954.41.