PMI Avoidance

PMI Avoidance

There are some options to avoid paying this costly fee.

a)      Get a second mortgage possibly - Secure the 80% funding from your primary lender and the remaining amount 10-15% by a second mortgage. Industry professionals refer to this as the 80-10-10 or the 80-15-5 funding.  With this, your down-payment typically amounts to 5 or 10 percent of the property value (at the time of appraisal).  The downside to this option is that the Financial Crisis of 2008 made these second mortgages more expensive, and as banks went down from 30-1 leverage to about 10-1, they have become harder and harder to find.

b)      Single premium- There is the option to pay the mortgage insurance at the closing with a single payment.  The single premium may be paid up front, or financed into the mortgage.  Using this option can result in tremendous monthly savings, and a lower overall cost during the life of the loan.

c)       Lender Paid Mortgage Insurance (LPMI) - The lender has the option of paying the premium for the mortgage insurance, but the mortgage rate is increased.  This makes the monthly payment higher in nominal terms. This is the optimal solution if you manage to put together 10 percent down payment.  The risk here is that the homeowner is stuck with higher rates until the life of the loan, unless it is refinanced at a later point in time.

For some who are not able to make the 20% down payment, these options must be considered.