Avoid paying Private Mortgages

To avoid paying private mortgage insurance you have to achieve a loan-to-value of 80 percent or less. However, you can do this even with down payment of less than 20 percent. How? Many lending institutions offer a loan called an "80/10/10." In this case, you are given two loans instead of one. Your first mortgage is 80 percent of the home's value and the second mortgage is 10 percent of the home's value and then you are required to place a 10 percent down payment. Essentially, this loan allows you to have a smaller down payment of 10 percent and you will receive the benefit of mortgage interest tax deductions. The lender will offer a first loan of 80 percent of the home's value which is less of a risk and will not require a private mortgage insurance and then will offer a second loan of 10 percent of the home's value. The second loan will be offered at a higher interest rate than the first loan. However, the total monthly payments of the "80/10/10" loan is usually less than if you paid a 10 percent down payment and was offered a 90 percent of the home's value mortgage with additional payment of private mortgage insurance.

Another route to avoiding paying the private mortgage insurance since it is not tax deductible is to incorporate the private mortgage insurance into the interest rate. In this instance, you will pay a higher interest rate than if you were to pay the mortgage with private mortgage insurance. This may be a good alternative since the mortgage interest is tax deductible whereas the private mortgage insurance premiums are not. You must do your homework on this matter as it can literally save you thousands and thousands of dollars. Ask you lending agent to find out which route is your best financial strategy. Compare the 80/10/10 loan against the loan with an incorporated private mortgage insurance.

Please keep in mind these types of loans are only valid for conventional loans. FHA (Federal Housing Administration) loans have Mortgage Insurance Premium (MIP) which will have to be paid until the mortgage loan is paid in full.

Monster.com. "Private Mortgage Insurance (PMI)." Online.
http://www.monstermoving.monster.com/Mortgage_and_Finance/MAI_Article/private_mortgage_insurance/

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