PMI Versus LPMI

Posted: Sun Oct 11, 2009 8:47 am Post subject: PMI Versus LPMI

Given the current market scenario, my house has appraised for less than expected. My neighborhood has had a lot of short sales and a few foreclosures. My LTV is 85%. I have been offered 3 options for the remaining 5%:

1. Pay monthly PMI - if the current market conditions persist, it would take me almost 5 years to amortize my loan to request lender to remove pmi.
2. Go with LPMI where the lender would add half point to the interest rate or
3. One time single premium mortgage insurance - approx.I calculated that it would take approx. a little less than 3 years of PMI payments to recover this cost.

Consideration: Unless the market conditions improve and the house appreciates, I would likely be paying pmi for almost 5 years, and it would cost me more to pay pmi versus the one time single Premium.

Question: Given the current market conditions, am i better off paying the one time single premium mortgage insurance versus the monthly pmi?

Trying to get a read into whether the markets are likely improve in the next couple of years and if home appraisals are likely to improve versus decline.

jameshogg · Posted: Sun Oct 11, 2009 7:53 pm Post subject:

Hi Guest,

If you can afford to pay a one time single premium mortgage insurance, then it would be a better option in my opinion. If you go for a PMI, you will have to make payment towards it on a monthly basis. In case, if it's not possible for you to pay one time single premium, then it's better to go for a PMI rather than increasing your interest rate.

Thanks

eric1 · Posted: Mon Oct 12, 2009 7:28 am Post subject:

Guest

Every scenario is different so it is not easy to give a blanket answer. In the past, it was often smart to go with LPMI instead of PMI because LPMI is an interest rate add on and the interest on your primary loan is tax deductible. However, now you may deduct PMI if you qualify and if the laws have not changed since I last checked. So, if your payments are the same, then there is no difference.

HOWEVER, eventually you would be able to have your PMI removed (once your loan balance is less than 80% of the value of the home). Many banks do not allow you to remove the LPMI add on for the life of the loan. So, you would be stuck with the higher rate regardless as to what your new LTV is.

gmakerley · Posted: Mon Oct 12, 2009 7:48 am Post subject:

eric made a good point concerning lpmi. i would opt for the regular monthly mi if it were my decision to make.

Posted: Tue Nov 03, 2009 11:36 am Post subject: LPMI

At what point in time is your lender required to drop your LPMI

jveenstra · Posted: Tue Nov 03, 2009 3:48 pm Post subject: PMI

Lender is required to drop the PMI when the balance of your mortgage drops below 78% of todays appraised value regardless of what the appraised value is when that occurs. You can tell when that occurs from the Truth-in-Lending document the lender has given to you or must give to you when you apply for the mortgage.

The only way to get rid of it faster is for you to call the lender when you "think" the appraised value is high enough to accomplish the same thing. The lender will make you pay for an appraisal to make sure the value is high enough based on the balance of your mortgage when you call them.

For the reasons noted above, I would do the monthly PMI lso.

eric1 · Posted: Fri Nov 06, 2009 12:18 pm Post subject:

Guest

The lender is NOT required to drop the LPMI unless it is stated and part of the loan conditions prior to closing. Many lenders have that LPMI rate add on and it is permanent. You need to research that before moving forward with your loan.

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