Many of you may find it surprising that private mortgage insurance companies seem to be coming back to the real estate finance arena in a big way. With the availability of conventional financing with as little as 3% down, this should not be too surprising. In June 2012, over 34,000 policies were issued nationwide, which was the highest monthly amount in over 3 years. Yet some MI companies that were big players 5-10 years ago are no longer operating, but plenty like MGIC and Radian are prospering these days.
For a home buyer looking to put less than 20% down on their purchase transaction, they now have the option to do a one-time PMI buyout where they take an interest rate that's slightly higher than market (usually .250%-.375%). Considering that PMI is no longer tax-deductible yet mortgage interest is (in most cases) this is making more and more sense to buyers in this situation.
Here's an example of how it works: a buyer wants to put 10% down and discovers that his monthly PMI payment will be $200 or $2400 per year. His Landmark mortgage advisor explains to him that the buyer could pay a one-time PMI premium of $7200 at the close of escrow, though the rate would be .250% higher ($50/mo) than if he exercised the option to pay monthly PMI.
The monthly savings is still $150 for the loan option with the higher interest rate (due to no monthly PMI), which saves him $1800 per year. Simple math shows that this buyer would make back the $7200 up-front PMI premium in 4 years, and he was able to slightly increase his tax deductions during that time. The cherry on top is that in most instances, the mortgage advisor can cover the bulk of the initial PMI premium. This makes the decision even easier for the buyer.
Landmark Mortgage Group is a division of Opes Advisors and licensed by the CA Dept. of Real Estate, Real Estate Broker license 01458652 and NMLS 235584. Equal Opportunity Lender.