About Private Mortgage Insurance

MGIC SingleFile Plan - Avoids PMI

MGIC, one of the largest private mortgage insurance underwriters, has a program called SingleFile where the lender the homeowner is working with charges them more interest, about a quarter to half a percent, and the lender pays MGIC directly. The homeowner can thus deduct the cost of PMI and avoid the only major downside of a piggyback mortgage, the additional closing costs. Unfortunately, on the lowest credit risk borrowers can apply for this program and in this particular case PMI can’t be cancelled unless the mortgage is refinanced.

Is this a good program? Depending on how long you plan on being in your home, this plan could be good or bad. If you’re especially short term, like five years or less, I think this is a good plan for you. With only one loan, you pay closing costs on only one loan. With no PMI (since it’s rolled in), the costs of the “PMI” is in interest which is tax deductible.

If you’re in it for the long haul, SingleFile is probably not a good product for you, here’s why:
1. While you only pay closing costs on one loan, the PMI can’t be cancelled so in order for you to get it removed you’ll have to refinance. Refinancing has closing costs as well, pay the piper now or pay him later… either way you will still pay closing costs twice. Current interest rates are so low that if you refinance it won’t be to a lower interest rate… double whammy.
2. PMI is automatically cancelled when your loan to value falls under 78%, you can request it be removed once it falls under 80%. Chances are your loan to value will fall under 80% if you plan on living in the home for a while so constantly paying PMI, even if it’s hidden in a higher interest rate, isn’t in your best interests.

If you only want one loan and see yourself living in the house for longer than, say, five to ten years - get PMI (or piggyback) but don’t get this plan. (my vote still goes to piggyback mortgages).

This entry was posted on Sunday, April 16th, 2006 at 8:19 am 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.