About Private Mortgage Insurance

Making a Case for PMI over Piggybacks

I’ve frequently mentioned how I like a piggyback mortgage over PMI because the extra payments (the interest on the second mortgage) but for today I will play devil’s advocate and try to argue the case for PMI and in what situations PMI makes more sense:

Adjustable Rate Second Mortgage
If you are faced with no choice but an adjustable rate second mortgage (as some second mortgages are), you will always want to go the route of private mortgage insurance. The piece of mind you get from knowing your PMI payments will never go up, especially in our rising rate environment, is something that outweighs the fact that it cannot be deducted from your income tax. You may plan to pay off the second mortgage ASAP and thus avoid the hassles of getting PMI cancelled (though that has been made much easier with recent legislation) but if something unforeseen happens - you could be in big trouble if the rate is reevaluated upwards.

One Mortgage, One Payment, One Hassle
Two mortgages means double the payments, double the paperwork, and when it times to do your taxes, double the forms and calculations. If you have everything deducted automatically from your bank, then you don’t have to worry about the double payments but you will have to worry about the rest. PMI isn’t so expensive that it’s worth the time and effort to bother with the additional work.

PMI Cancellation Is Easy Now
It used to be that lenders and the underwriters would make it a pain to get PMI cancelled. Some had rules where you needed to keep PMI on for a minimum of one year, some made you jump through all sorts of hoops, and after you recited the secret code word… they’d cancel your private mortgage insurance payments. Now, with The Homeowner’s Protection Act of 1998 it is automatic when the Loan To Value is under 78% and can be cancelled with a little bit of prompting when it’s under 80%.

So, PMI isn’t that bad.

This entry was posted on Thursday, May 4th, 2006 at 7:43 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.