For consumers purchasing or refinancing a home with less than 20% equity or 20% down, there is a small fee that will apply to the total mortgage payment which is effectively inflating the monthly outlay. Homeowners pay mortgage insurance to insure the lender against future mortgage payment default. Mortgage insurance also known as PMI (Private Mortgage Insurance) can be up to several hundred dollars per month depending on the loan program. This added premium makes the cost of homeownership more exspensive...however there is away to cut the cost of your mortgage payment using: Single Pay Mortgage Insurance. You must remember that the LTV (loan to value) is the amount of money being lent against the value of the house. This is calculated by taking the loan amount divided by the home value. This is a key facetor in home lending.
What is Single Pay Mortgage insurance?
Single pay mortgage insurance in summary is basically an added fee but with a favorable upside. This allows a consumer to pay upfront a portion of the future mortgage premiums at a dsicount at the close of escrow rather than financing these monies into their payment. This will help qualify by means for a lower debt to income ratio, a lower mortgage payment and also a lower cost loan. Here are some of the pros and cons of single pay mortgage insurance
- Lower cost of funds
- Reduced mortgage payment
- Expedient recuperation of savings
- Increases borrowing power
- Higher upfront overhead required. An average of approximately 1.75% of the loan amount would be paid at closing.
- The loan would have to be kept for at least the amount of time necessary to recuperate paying upfront overhead, paying off the loan earlier negates the benefit.
- The option isn't offered by all mortgage companies, so ask your lender upfront if they offer single pay mortgage insurance as an option to keeping your new payment lower.
Single pay mortgage insurance offers the consumer a more easier and flexiable way to help secure their financing while also keeping the longterm mortgage payment more manageable against a househould budget. If people have the equity or cash available, single-pay mortgage insurance makes securing higher loan-to-value financing more manageable, and a PMI would not be required.
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