PMI verses no PMI

iVillage Member
Registered: 03-30-2003
PMI verses no PMI
4
Tue, 04-29-2003 - 1:06pm
My husband and I only put 5% down on our new home. we plan on making large principle payments to obtain the 20% equity so that the PMI would eliminate (hopefully within a year). Whould this method be best or should we take out a seperate loan for the PMI with a higher interest rate? Any math/finance experts out there who can help us? which is more beneficial? Thanks in advance.
iVillage Member
Registered: 04-29-2003
Tue, 04-29-2003 - 1:22pm
Hello there:

I just wanted to throw out there my scenario and what we did before you opt out of PMI entirely right now.

We bought our house last April 2002 - our first house... We only had 5% to put down and decided to risk it and take the PMI. Payments weren't too bad... So total for a 1 year I spent $1200 -- Though no tax incentive I still had cash instead of building equity through our cash we were able to work on the house so IT COULD BUILD THE EQUITY.

Let me put it to you straight. I just refinanced 1 year after and I removed PMI WITHOUT throwing any more than the regular payments and eating the $1200 for PMI and got rid of it for $1200 vs. $15% of the value of the house. IT IS A RISK... And to each their own but it worked for us... IT really depends on what you are comfortable with. You can always check to see what houses bought for and sold for to see if you could get a 15% increase in value.

Good luck!

iVillage Member
Registered: 02-14-2003
Tue, 04-29-2003 - 3:02pm
Hi coldreality. This is a great question for Real Life Real Estate. There's a folder there for lending questions. Otherwise, post all your questions related to debt and how to reapy it on Debt Questions and Answers.

http://messageboards.ivillage.com/iv-mlrealestate

CM Ms Joe Cool

Senior Community Moderator

moneylifecm@mail.ivillage.com

Ms Joe
CM Ms Joe Cool
Senior Community Moderator
moneylifecm@mail

iVillage Member
Registered: 07-26-1999
Tue, 04-29-2003 - 3:50pm
Hi, I don't know very much about PMI--I am assuming that is purchase morgage insurance?

Anyway, I worked for a short time in the life insurance business. One big market for term life insurance is specifically to be used as mortgage insurance. Say you have $100,000 mortgage. You buy a joint(on you and your husband) 10 year term life insurance policy for $100,000. It pays out on the death of either you or your husband, so that you can pay off the mortgage and then own the house - the idea is that this will go a long way to maintaining the family's standard of living on the death of either spouse.

The other part of this is that your premiums stay the same for the ten years. I don't know if that is the case with PMI or not. Also, your coverage also stays the same--you get the full value of the policy (in this example, $100K) if either of you dies at any time over the term of the policy. My understanding of PMI is that the insurance covers the outstanding principle of the mortgage ONLY, and it is paid directly to the mortgage lender, not to you as the insured person. So the other big benefit of using a term life insurance to cover your mortgage is that if one of you were to die in say, year 8 of the policy, and say in that time your mortgage has been paid down to $60K, then the life insurance still pays $100K, and the surviving spouse still has $40K left to invest/live off AFTER the balance of the mortgage has been paid. I hope that makes sense. I was always told in training sessions when I was working in this business that term life insurance premiums are cheaper than bank mortgage insurance premiums...and the coverage is often easier to get too. Also, once you have the life insurance policy to cover the mortgage, you can switch mortgage providers without having to worry whether the new mortgage provider will approve you for their mortgage insurance...so you have more freedom to shop around for differnt mortgage providers if you want to. Hope that all makes sense.

iVillage Member
Registered: 02-14-2003
Tue, 04-29-2003 - 4:33pm
Private Mortgage Insurance does not benefit the mortgage holder in any way. It's a requirement of the mortgage industry depending on how much you owe versus the value of the home. Where this discussion is going is precisely why I asked that it go to the Real Estate board, the proper board for the question. :o)

I'm adding on here. LOL! I'm hoping I gave correct advice. It's certainly what I understand about PMI. It's my spotty knowledge that leads me to direct folks to the proper board. Well that and what's the point of having a real estate board if RE related questions are asked here. ;o)

Ms Joe


Edited 4/29/2003 8:05:50 PM ET by cmmsjoecool

Ms Joe
CM Ms Joe Cool
Senior Community Moderator
moneylifecm@mail