Avoid Mortgage Insurance
Mortgage insurance (PMI) could be an additional cost to your monthly mortgage payment as much as a couple hundred dollars. PMI is generally charged by all lenders on home loans where the buyer does not put 20% or more down on the home. There are some ways to avoid paying mortgage insurance, or get it dropped.
20% Down Payment
If you are able to put 20% down on your home when you buy it then you won't have to pay PMI. This is a great way to reduce your monthly payment. So if you are thinking of holding on to some extra cash, remember it will take a long time to pay that extra 5% on your mortgage, and rid yourself of the PMI.
Piggyback
A little while ago, lenders would allow you to take out a mortgage on 80% of the home loan and then get a second mortgage on the remaining 20% of the home loan. This would eliminate PMI. Now, with the credit crunch, it is almost impossible to be able to piggyback. Sorry.
No Interest Family Loan
When in doubt, ask Mom. Your family may be the way to go if you need some extra cash in order to reach that 20%. You can pay them back much more quickly than you would be able to reach the 20% on your own. This will allow you to avoid some interest costs on your home in the long run as well.
Higher Interest Rate
Sometimes you can negotiate with the lender to drop the PMI if you are willing to pay a higher interest rate. This can be good if you calculate that you will save more money by dropping the PMI than if you were to have the lower interest rate. This can be tricky though.
Make Extra Monthly Payments
You can always make extra monthly payments towards the principle on your home to inch yourself closer to the desired 20%. Once you reach 20%, remember to request that your mortgage insurance is dropped. Many banks won't drop it automatically.
Whatever you do to rid yourself of mortgage insurance, know that it is worth it. Mortgage insurance is just something for the lenders to do to protect themselves against a loss. There is no gain to you what-so-ever.
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