When you buy your home, do you feel as if you're spending a lot more than the actual price of the house? For example the interest on your mortgage seem like a lot for the first few years! And you might even feel that getting mortgage insurance is money down the drain too.
Mortgage insurance is a backup plan in case a homeowner defaults on their loan. Don't jump to the conclusion that if anything happens this insurance policy will help you pay off your loan. This policy actually helps only the lender and no one else. Part of your monthly mortgage goes towards the premiums for the mortgage insurance.
The only way you can avoid this mortgage insurance is if you can put at least twenty percent of the mortgage down. This twenty percent mark applies also if you have repaid your mortgage to that mark. Once you have done that, your mortgage insurance policy can be cancelled.
You might be asking, how much are you really paying for your premiums. Depending on the insurer, this may vary, however it should exceed $100 per month. This is on top of what you already pay into your mortgage. So say if you're paying $900, your monthly mortgage becomes $1000. It could make that different between a two three figure to a four figure mortgage.
If you're not happy with this, what else can you do? Can you shop around? Generally the premiums are all pretty similar. Private insurers can offer more options, they will have the average plan for the average homeowner as well as more specialised plans that are more affordable.
Check with private companies to see what kind of loads they insure. They might not deal with high risk loans and they will change higher premiums due to the high possibility that the borrowers may default. They may only insure those who have already given a percentage of down payment.
The FHA offers a program for those who may need a little assistance, with the whole home buying process. They teach subjects such as budgeting, how to qualify for a loan, how to find homes in your price range, how to keep your home in good condition and hence retain its market value. Those who have successfully completed the program are eligible for a reduction in their FHA mortgage insurance premiums, which is a reduction of half a percent from the original price.
So you may still be asking, which is better, lender or private? Well that would really depend on your situation. In an ideal world you would want a policy that doesn't cost too much, as you will be paying for several years to come. Private mortgage insurance can offer you lower premiums for qualifying the loan, but you will have to attend and pass special programs before that happens. So take your time and think carefully about which one you want to go for.
Richard Tyler is a happily retired investment guru who ran several successful businesses during his earlier years. He now shares his wealth of knowledge on investment, business and strategic wealth management at Invest Money Stocks. For more free useful articles on mortgage please visit Invest Money Stocks. |
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