The Mortgage Insurance Killer

Remember the good-old-days of using a second loan to eliminate mortgage insurance?  If you have sought out home financing for a purchase or refinance within the last seven years you may not.  That’s The GreenHouse Groupbecause in our current lending environment anyone with less than 20% down must pay a monthly mortgage insurance premium.  If you don’t know by now mortgage insurance insures the lender against losses in case of borrower default and in the pre-housing-bust era that ended in 2007 people seeking a mortgage with less than 20% down for a purchase (or 20% equity for a refinance) would obtain a second mortgage to avoid paying a monthly mortgage insurance premium.

As the market shifted in the middle of 2007 and lenders tightened guidelines mortgage insurance became the norm.  Until now.  Second loans are making a come back and we now have the ability to finance a purchase up to 90% financing and a refinance up to 85%.  See the table below for an example of what a purchase with one loan with mortgage insurance looks like compared to a purchase with two loans.

One loan w/ Mortgage Insurance Two Loans
Purchase price $500,000.00 $500,000.00
1st loan amount $450,000.00 $400,000.00
2nd loan amount n/a $50,000.00
1st loan payment $2,149.00 $2,149.00
2nd loan payment n/a *$167
MI payment $259.00 n/a
Total monthly payment $2,408.00 $2,316.00
*fully tax deductible

The two-loan option not only gives you increased purchase power and/or lower monthly payment but it also maximizes your mortgage-interest tax deduction.  Mortgage insurance is not currently tax deductible.

David Hughson

Mortgage Therapist

858-863-0264

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The GreenHouse Group, Inc. | Real Estate Consulting & Mortgage Planning. "Moving People With Purpose."

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