Are you putting less than 20% down on a purchase? Or, if you are refinancing, do you have less than 20% equity in your home?
In other words, if your Loan-to-Value (LTV) is greater than 80%, you will be required to pay Mortgage Insurance on all conventional and jumbo loans. Mortgage Insurance can add the equivalent of .31% to over 1.00% to your interest rate, depending on the LTV and type of property. Mortgage Insurance protects the investor (lender) in the event that home values dip lower than the mortgaged loan amount. Mortgage Insurance is not tax deductible (except on investment properties) and it does not go towards paying down the principle or interest on the mortgage loan.
It may be more cost effective to do two loans- the first loan at 80% and the second loan for the remainder up to 100% LTV. This will eliminate the need for Mortgage Insurance and keep your monthly payments as low as possible.
There are also loan programs available where the rate is slightly higher, and Mortgage Insurance is built into the rate. These products are available for portfolio loans – and are applicable in situations that are outside the “conventional” guidelines” (unusual employment, credit challenged, etc.)
We will help to determine if this option is best for you. Please feel free to ask about it, if we don’t bring it up first!
Again, two loans 80% and 20% LTV will eliminate the required Mortgage Insurance. (See No Mortgage Insurance Loan Options)