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.

Ditech : Mortgage Loan – Loan to Value Ratio Explained

The loan to value ratio is an important aspect of your mortgage application. This ratio affects your approval status and the interest rate you qualify for. Here is what you need to know about loan to value ratios.

The loan to value ratio represents the part of home you are financing against the total value of the property. Mortgage lenders have specific guidelines for lending at a certain value of this ratio. If you are outside of the guidelines for a particular lender’s loan to value, your mortgage application will be denied.

Calculating Loan to Value is easy. Simply divide the total amount you wish to borrow by the value of your home. For example, if your home is valued at $180,000, and you are applying for a $120,000 mortgage loan you divide $120,000 / $180,000, and your loan to value ratio (LTV) is .66 or 66%.

The higher your loan to value ratio is, the less equity you own in your home. Mortgage lenders consider high loan to value ratios to be a greater risk. If your loan to value ratio is greater than 80% your mortgage lender may require you to purchase Private Mortgage Insurance as a condition for approving your loan. This insurance protects the lender from losses if you default on your mortgage.

If you are applying for a mortgage with a high loan to value ratio, expect the lender to charge you a higher interest rate for the loan. To avoid higher interest rates and private mortgage insurance you should save money for a larger down-payment. Use a mortgage calculator when shopping for your mortgage to help determine exactly how much mortgage you can afford. To learn more about finding the right mortgage for your situation, register for a free mortgage guidebook.