PRINCIPAL MORTGAGE INSURANCE (PMI or MI).... What you need to know !

I had a client who had some questions about "Mortgage Insurance". He was very mistaken about his interpretation.

Here is what you need to know!

Most loan professionals have only two options these days for refinancing people out of an ARM (Adjustable Rate Mortgage) or other compromising loan situation. One option requires mortgage insurance and the other does not. The first option, where every lender now requires you to pay mortgage insurance, is when you have one loan that is above 80% LTV (Loan-to-Value). The second option, where you split your loan into two loans is commonly known as an 80/20 option. Rarely will they use all the remaining 20% on the second mortgage or HELOC (Home Equity Line Of Credit). With the second option, since the 1st mortgage amount is 80% or below, lenders do not require you to pay mortgage insurance.

If you choose the HELOC Interest Only option, the difference between the option 1 and the option 2 bottom line payments is very small. It is almost a wash, so it really boils down to the interest rate that you receive. Keep in mind on an Interest-Only HELOC you are only paying INTEREST! (You will not pay down the principal amount unless you make extra payments.)

If you choose the first option (one loan above 80% LTV) you will be paying the mortgage insurance; however, you will also be paying on the PRINCIPAL and INTEREST! This is the trade off. One advantage to this option is that if you have a household income of $100,000/year, you can write off all your mortgage insurance on your taxes.

Things to avoid in these situations are:
- An Interest Only on the first mortgage as well as an Interest Only HELOC just to lower your payment. This gets you nowhere with your principal balance.
- NEVER let a lender put a PRE-PAYMENT PENELTY on your loans.
- The bottom line payment isn't always the "BEST" option.

Other things to consider:
-Interest Only options are GREAT for older people with plenty of equity (70% LTV or below) that may be on a fixed income. Older people need to realize the likelihood of passing without a house payment at all is probably not VERY common or realistic.
- They also need to realize that their children will not be disappointed if they leave them a house with 30% equity. In this market that is NOT a liability at all.
- INTEREST ONLY programs are NOT bad. However, you must just be disciplined.

This can be very confusing so I hope has cleared up some questions and/or concerns about the different options. However, if you have additional questions or need some clarification, please do not hesitate to email me at matt@myprosperityfinancial.com or visit or newly renovated website http://www.colomortgages.com/

From my family to yours HAPPY HOLIDAYS !!!!