Understanding private mortgage insurance (the PMI)

You should have a mortgage insurance in case the down payment of your home is much less than 20 percent.

Mortgage insurance is also known as private mortgage insurance for distinguishing it between VA and FHA insurance, these are the programs run by government. Mortgage insurance cost depends upon loan and size of down payment depending upon which it varies, mostly it amounts to about half of one percent of loan.

In case of mortgage, insurance premiums are being paid by the borrower and lender enjoys profit. Lenders are protected by coverage against the fault of borrowers. In case if borrower stops doing payment on mortgage, the insurance company makes sure that it has the full payment which has to be done by the lender. Mortgage companies do take away the insurance providers but whole payment has to be done by the borrowers. Generally it is done in monthly installments. Some lenders do provide certain programs under which entire amount is being paid by the borrowers in huge sum at the end of closing.

In accordance to the numbers ….80- 10- 10 plan

In case if compare standard fixed mortgage to the $150,000 purchase home according to the 80- 10- 10 plan, it is found that former one is much more cheaper to latter one by about $35.36 every month.

The way how 80- 10- 10 plan work is: 10 percent of down payment over $150,000 is $15,000. First mortgage at 7 percent is $120,000, according to which monthly payment is $798.36. Second mortgage is at 9 percent of interest rate which is $15,000 and makes monthly payment of $120.69. Hence, total monthly payment of both the loans would be $919.05.

With down payment of $15,000, one mortgage at 7 percent will be $135,000 making a monthly income of $898.16, plus the mortgage insurance $56.25, thereby making a total of $954.41 payment.


The value of house: $150,000

According to 80- 10-10 plan

Down payment will be: $15,000, 10%

First mortgage value will be: 7%, $120,000, $798.36

Second mortgage will be: 9%, $15,000,$120.69

Monthly income would be: $919.05

The plan of standard fixed mortgage

Value of down payment: $15,000, 10%

First mortgage value: 7%, $135,000, $898.16

Mortgage insurance will be: $56.25

Total monthly income: $954.41

Monthly difference would be: $35.36

Pay more of the interest

The increase in rate is generally of three quarters of one percentage point, or may be of 75 basis point of full percentage point, it depends over down payment. Borrowers may gain much of the benefits by it as mortgage interest is tax deductable.

Use of 80- 10- 10 loan

This program may provide you with two loans. The borrower may be provided with a first mortgage of 80 percent of sake price, and second mortgage of 10 percent of price whereas remaining 10 percent down during closing. Second mortgage is provided with a higher rate of interest. But as it is only 10 percent of total loan, monthly payments of two mortgages is lower than that of one home loan along with mortgage insurance. Plus interest on second mortgage which is tax deductible.

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