About Private Mortgage Insurance

Mortgage Rates Increase, Good for Homebuyer’s PMI

The average 30 year fixed rate mortgage has reached 6.67%, over a full point higher than a year ago when it sat at 5.62%. This was caused by inflation concerns voiced in the Federal Open Market Committee minutes that were released today. As a prospective homebuyer, should be happy rates are higher or lower? While you may curse higher interest rates, you’ll be surprised to know that you’re probably better off from a private mortgage insurance perspective. If you’re a homeowner, this is bad.

Why is this good as a buyer? When mortgage loan interest rates go up, it usually means that the housing market will begin to cool off. That means that prices will stagnate and even potentially fall, which means the money you’ve saved for a future home purchase will represent a greater percentage of the price. If you’re luckily enough to have prices dip low enough such that your loan to value is under 80% - you’ve just escaped PMI.

If you’re a homeowner paying PMI - this is bad. If your home value increases, your loan to value ratio will decrease. At some point, it’ll be worth it for you to get your home reappraised by an agent hired by your mortgage lender and if the LTV is under 80%, then PMI will be cancelled. Now, as mortgage interest rates increase, the market will slow and home prices won’t appreciate as quickly so that method of having your PMI cancelled won’t be as easy.

This entry was posted on Thursday, June 1st, 2006 at 2:06 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.