Jun 21
Trend: Homebuyers Choosing Mortgage Insurance
Until recently, far more popular with home buyers than mortgage insurance was the adjustable-rate mortgage or “piggyback” loan, which promised great savings and the ability to buy in with little or no money down. Nowadays, the housing market isn’t as hot as it once was and first time home buyers and those with small amounts available for a down payment are returning to traditional fixed-rate mortgages backed by private mortgage insurance, or PMI.
A monthly rate is usually charged for mortgage insurance, a fee determined by the size of the mortgage. If the home buyer is unable to pay the mortgage, then the lender is covered. The guaranteed payment makes lenders more agreeable to writing mortgages for those who may not otherwise be a very promising candidate for a home loan.
Another plus is that the home buyer is not doomed to continue purchasing the mortgage insurance for the life of the loan. Once the buyer has built up 20 percent equity in the home, the insurance can be cancelled. This can usually be accomplished in about four or five years.
Pat Lamb, president of the mortgage division of First National Bank of Arizona in Scottsdale, said that as opposed to the formerly popular adjustable-rate mortgages, “in the last six months, the mortgage insurance side has become much more competitive.”
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