In addition to the monthly payment, you probably also paid a lump sum
Mortgage Insurance Premium when you closed - probably a few thousand
dollars. You get some of this back if you move within the next few years.
Otherwise it is gone. (This may only be for FHA loans. I'm not sure.)
The other problem is that I believe you have to keep paying the monthly
Mortgage Insurance Premium even after you have 20% down unless you
refinance. If you got a good interest rate now, you could lose it if
interest rates are higher when you refinance to get rid of the Mortgage
Insurance payments. (I have heard that you may be able to remove the
Mortgage Insurance Premium by writing a letter to the lender once you have
20% down, but I wouldn't count on it.)
There are creative ways to get around Mortgage Insurance such as putting
10% down and simultaneously getting a 10% home equity line of credit so
that you have 20% "equity." You pay a higher rate on the home equity line
of credit but avoid the costly PMI.
timothy.regan@zurich.com on 10/26/98 10:29:35 AM
To: casnet@lists.casact.org
cc: (bcc: Brandon Keller/BOCA/NCCI)
Subject: P&I Insurance
I had noticed the discussion on title insurance and it reminded me of
another type of insurance tied to home purchases that really bothers me:
Principal & Interest Insurance. I recently bought a new home and
discovered on my payment slips a monthly charge for P&I that is nearly
double the amount for my monthly home owner's insurance! Does anyone out
there understand this??????? I was told that until I have at least 20%
equity in my home (I only put down 10%) I would have to keep paying for P&I
Insurance; this, they said, was to protect the mortgage company in case I
defaulted on my loan. I may not be the sharpest knife in the drawer, but
if I stop making payments, doesn't the mortgage company get to (1.) take
the house, which more often than not appreciates in value, and (2.) keep
all monies that I've already paid?!?! It would seem to me that the
mortgage company is, for the most part, already protected; this isn't,
after all, second chance auto financing where the repossed car isn't worth
anything!. Then why are the rates SO HIGH? I have discussed this
insurance with other people in our department and they seem to be just as
mystified about it as I am. I would appreciate anyone's input on this.
Tim Regan
Universal Underwriters
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