If you’ve ever been in the market for a mortgage, you’re probably familiar with some of the bigger names in the business like Lending Tree, Yahoo! Finance, and Bankrate.com when it comes to researching the best rates, terms, and offers for mortgages out there. Of course, those make perfect sense when you’re talking about a mortgage in the United States but if you’re thinking about getting a mortgage in the UK, it would be a grave mistake to look at those three sites. In the UK, the Motley Fool has a UK version along with its own Fool.co.uk Mortgage Website where you can compare mortgage offers from numerous lenders easily.
The front page itself is as colorful as you probably expect any Motley Fool page to be and is chock full of useful resources. With a click of the button, you can look at all types of mortgages from fixed rate to buy-to-let to capped mortgages and compare offers across of them. One of the things I really like about these mortgage offer listings that I feel should be introduced in the United States is the Overall Cost for Comparison value, which is important when you’re comparing a bunch of variable/fixed offers - it’s an apples to apples comparison that you don’t get by comparing APR.
Lastly, I wouldn’t leave the site without requesting their free mortgage guide because it’s likely to be filled with lots of valuable information worth more than its asking price (free!).
This is a sponsored post.
That’s right! This totally changes the decision between whether to get private mortgage insurance or to get a piggyback loan because now, for mortgages originating in 2007, you will be able to deduct PMI as if it were mortgage interest.
Here are the caveats:
• The tax deduction applies only to mortgages that are closed in 2007. If you have a loan with mortgage insurance in 2006, you won’t be able to deduct the premiums in the 2007 tax year unless you refinance in 2007.
• There are income limits. You get the full deduction if your adjusted gross income is $100,000 or less.
• This is a one-year deal, and Congress would have to renew the deduction to make it apply for the 2008 tax year and beyond.
• If you take the standard deduction instead of itemizing deductions, the new law makes no difference to you.
From the Sun Herald:
Bruce Hahn, president of the American Homeowners Grassroots Alliance, believes there’s a better chance Congress will make private mortgage-insurance payments tax-deductible. “I think it’s going to help expand homeownership among low- to moderate-income borrowers,” Hahn said.
According to the folks over at Bankrate, your credit score is not the only factor when it comes to determining your private mortgage insurance rates, the following factors also play a major role:
Size of the down payment. Your PMI premium will be higher if you put down 5 percent, versus putting down 15 percent (this is also known as the “loan to value ratio”).
Potential for property appreciation. Your premium might be higher if you live in a city with declining property values. PMI companies monitor real estate prices and the economic trends that affect them as they set PMI rates.
Type of loan. The rate can vary depending on whether you are getting an adjustable- or fixed-rate mortgage or an interest-only loan. The riskier the loan, the higher the PMI.
Interest rate. A higher interest rate can, and usually does, mean a higher PMI rate because borrowers with poorer credit scores are frequently offered higher interest loans that carry higher PMI payments.
Borrower occupancy. If you are borrowing to purchase an investment or rental property, your premiums will be higher than if you borrow for a home you plan to occupy.
Source: Yahoo Finance
Private mortgage insurance protects your lender in the event you default on your payments, it is not homeowners insurance, which protects your personal property and your home in the event of some sort of accident or theft (depending on your policy). Do not confuse the two!
You often have no choice when it comes to private mortgage insurance, your lender will arrange that for you. When it comes to homeowners insurance, you will have more choices than you will know what to do with. You will need to pick how much coverage to get (your lender may dictate that you have a minimum dollar amount), the type of policy to get (what gets covered and against what), and what company to go with.
The Homeowners Insurance Guide is a blog that covers all sorts of homeowners and renters insurance information from a description of what the different policy riders are to an explanation of the numbered HO policies cover. Give it a look, you might find something useful about homeowner’s insurance.
According to the Mortgage Bankers Association of America (MBAA), private mortgage insurance should cost somewhere in the range of one-half of one percent of your loan amount. If your loan is for $100,000 then you would expect to pay around $500 each year for private mortgage insurance on top of your mortgage payments. What you pay will be a little more or a little less depending on a few other factors such as your credit history and score because, as you may recall, the insurance protects the lender from you defaulting on the loan.
Check out the answer for this question from Inman Consumer News:
DON’T BE A CHEAPSKATE TO GET RID OF MORTGAGE INSURANCE
DEAR BOB: I need to get an appraisal from a certified licensed appraiser to prove my loan-to-value ratio is below 80 percent so my PMI (private mortgage insurance) monthly premium can be cancelled. I called my mortgage lender who is affiliated with an appraiser who charges $300. I phoned an appraiser in the yellow pages who wants $325. But I heard some real estate agents, who are also certified licensed appraisers, charge less since this is a one-bedroom condominium. I don’t feel I need to spend $300 to remove an expense my lender has been taking from me for the last five years. I have never been late with payments. Is there a less expensive alternative? –John M.
DEAR JOHN: Don’t be a cheapskate. You didn’t say how much your monthly PMI premium costs, but let’s say it is $50. Presuming you have at least 20 percent equity in your condo so you are eligible to cancel the PMI, if you pay $300 for a professional appraisal to prove to the lender you have at least 20 percent equity, you will earn back that $300 from just six months of PMI premium savings. That’s an easy “no brainer” expense.
First off, there’s no need to call someone a cheapskate when it’s obvious they’re asking whether it really matters what appraiser you go with. It’s not like the guy is deciding between doing the appraisal to remove PMI and not doing the appraisal, he obviously will do it because it saves him money down the road, but he wants to know whether it really should cost $300 to do it. Also, paying $300 to one of the mortgage lender’s best friend doesn’t guarantee you’ll get a home value that cancels private mortgage insurance. Robert Bruss should’ve read the question more carefully.
John - If you’re certain that the value of your home is more than what you’ll need to cancel PMI, shop around for an appraiser and then check with your lender if they’ll accept that person’s appraisal. You might find someone who will appraise your one bedroom condo for $150. I’ve found though that if you’re doing the appraisal to cancel PMI, the lender will want you to use of their appraisers.
If you are paying private mortgage insurance and only making the minimum payments on your mortgage each month, consider adding a little extra to your payment in order to get you loan to value under 80%. For mortgage holders who aren’t paying PMI, the incentive to pay extra turns a 30 year mortgage to a 25 year mortgage… not much incentive if you only intend to stay in the house for five years. However, if you’re paying PMI, you’re paying a small premium that can be removed much faster if you accelerate your mortgage payments.
There are two ways you can pay “extra” and speed along your amortization. The first is just adding more to each monthly payment. The extra gets put towards the principal and thus your interest payments will decline (less principal to calculate interest against). The second is paying twice a month (bi-weekly). Simply take your payment, chop it in half, and pay half midway through the month and the other half at the end. The amount you pay is the same but there is less interest because there is less time for interest to accrue.
For example, if you use this calculator from DinkyTown, if you have a $100,000 mortgage and you pay it on the bank’s schedule, you hit 80% at around Month 12. If you switch to a bi-weekly payment, you go from Month 12 to Month 8, that’s four months worth of PMI you no longer have to pay.
The Homeowner’s Protection Act of 1998 also has one other way to get your private mortgage insurance cancelled even if you haven’t reached a LTV of 80% (or 78%), when you’ve reached the chronological midway point of your mortgage loan then your PMI will be automatically cancelled. So on a 30 year loan, after 180 payments and if you’re current on your payments, then PMI coverage is supposed to be terminated.
If you haven’t reached 80% LTV on your home after half of your mortgage payments, there is something seriously seriously wrong.
There are three ways to get rid of PMI and these are all strategies to get your loan to value ratio down to 80% or less:
1. This case is the easiest, you’re already at 80% and you haven’t told the lender you want it cancelled (you always do). If the amount you owe divided by the amount the home is worth is less than 0.80, call up your mortgage lender and ask that you private mortgage insurance be cancelled. You are no longer legally obligated to pay for private mortgage insurance. In fact, the lender is legally obligated to cancel it. If it is less than 0.78, the lender should’ve already cancelled it.
2. The second case is where your LTV is like 81% or 80.5%, so if you’re $500 away from reaching an 80% LTV, then you might want to consider prepaying so you can cancel PMI. By law, anytime you reach 80% LTV, you can cancel.
3. If your LTV is a lot over 80%, your next option is to get your home value changed. If you made any major renovations or if homes in your neighborhood (or comparables) have been selling for much more, you may want to consider getting your home reappraised. Usually a lender will require that you pay an appraisal fee and use their appraiser but if the value of your home comes back much larger, this could pay off in the long run. For example, if you owe $255,000 or a $300,000 home (LTV 85%) and the homes have been selling for $318,750+ then you might want to consider getting it reappraised. If your home value was increased to $318,750, then your $255,000 loan now has a LTV of 80% and you can cancel private mortgage insurance. You might want to wait until homes are selling for a little more than $318,750 (in that scenario) just in case the appraiser comes in a little low. Even if he/she comes in a little low, you can always prepay to get your loan down to 80% of the home value.
Sadly, if your LTV is very high or homes in your neighborhood haven’t appreciated a tremendous amount, you may be stuck paying private mortgage insurance for quite a while.