Ditech : Private Mortgage Insurance – Avoid Paying PMI by Negotiating For a Higher Mortgage Rate

If your mortgage company is requiring Private Mortgage Insurance with your loan there are ways around paying for this insurance. Private Mortgage Insurance does nothing to protect the homeowner and can add hundreds of dollars to your monthly mortgage payment. Here is one way to avoid paying for Private Mortgage Insurance.

Mortgage lenders are usually required by Fannie Mae and Freddie Mac to have Private Mortgage Insurance on all mortgages with loan-to-value ratios greater than 80 percent; however, lenders that do not sell mortgages on the secondary market can offer loans without Private Mortgage Insurance. The catch is that these no Private Mortgage Insurance lenders typically price their loans .5% higher than the prevailing market rates.

Will this higher mortgage rate save you money? It depends on your situation and how much more the PMI premium will add to your payment. There is another factor to consider when opting for a higher mortgage rate; you gain a tax advantage with the no Private Mortgage Insurance loan because PMI premiums are not tax deductible. On the other hand, you are able to terminate your Private Mortgage Insurance after your equity reaches a certain level and the lender may do it sooner if your payments have all been paid on time.

The decision to pay a higher mortgage rate or take Private Mortgage Insurance is not clear cut for every homeowner, however, you may be able to save money with a higher mortgage rate and the option to refinance down the road.