| Some lenders require private mortgage | | | | taking out one mortgage, you actually take |
| insurance, or PMI, when you obtain your | | | | out two. The first one is for 80% of the |
| mortgage. It can cost you hundreds, even | | | | amount you need. Obviously, if you go more |
| thousands of dollars each year. It is rather | | | | than this, you pay PMI. This becomes your |
| easily avoidable, however, by simply making | | | | first mortgage. |
| different financial arrangements. Here are a | | | | |
| few ways that you can get out of this extra | | | | A second mortgage is taken out at the same |
| financial burden. | | | | time, as a piggyback on top of the other one, |
| | | | typically either for 10%, or even 15%, of the |
| Private mortgage insurance, sometimes also | | | | remaining balance. The amount not included in |
| referred to as Lender's Mortgage Insurance | | | | this amount is expected from you as a down |
| (LMI), is required by law if you borrow more | | | | payment. These percentages may vary with |
| than the necessary 80% of the loan to value | | | | different lenders, but they will be similar. |
| (LTV) of the house. Once you go and borrow | | | | |
| beyond this 80%, PMI becomes necessary. PMI | | | | * Reduce Amount Owed |
| can range anywhere from two-tenths up to | | | | |
| nine-tenths of the total amount of the loan. | | | | Private mortgage insurance was designed to be |
| | | | required only when more than 80% is borrowed. |
| Lenders look at loans larger than this value | | | | This means that mortgages should contain |
| as being a greater risk to themselves. The | | | | clauses in them that automatically eliminates |
| private mortgage insurance is designed to | | | | this added charge when you get the principal |
| offset their risk. However, what has actually | | | | down to 80%. The lender can, however, require |
| happened, is that while it makes the lender | | | | you to pay PMI until you actually bring it |
| more comfortable, it can also make it that | | | | down to 78%, and you must be current with |
| much harder to get a mortgage because now the | | | | your payments. (High risk loans may have |
| payments become larger to pay for the PMI. | | | | different terms.) In some mortgages, however, |
| There are three ways around this problem. | | | | there may be a required period of time to pay |
| | | | the PMI - even if you pass the 80% mark. |
| * Make A Larger Down Payment | | | | Still, some lenders may let you talk them |
| | | | into removing it once you do so. |
| When you come up with the remaining 20% of | | | | |
| the value of the house, you then make it | | | | If you already have a mortgage and are paying |
| unnecessary to pay the PMI. Simply by putting | | | | PMI, it would be worth it to make larger |
| down this amount, you can save hundreds of | | | | payments if you can just to be rid of it. |
| dollars each year. Even if you have to borrow | | | | Once you reach the 80% LTV, PMI can usually |
| the money from a relative, the savings will | | | | be removed soon after. |
| make it worthwhile if you can produce cash at | | | | |
| closing. | | | | In 2007, if you took out a mortgage this year |
| | | | and are required to pay PMI, you may be able |
| * Piggyback Loans | | | | to claim some of it on your taxes. The main |
| | | | requirement is that you make less than |
| This is a recent feature among lenders to | | | | $110,000 for the tax year. It may not be |
| help people have a way around PMI. Instead of | | | | available after this year. |