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 because 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.
Mortgage Therapist
858-863-0264