How you can avoid the hassle of private mortgage insurance

REAL ESTATE WATCH

January 04, 2004|By Knight Ridder/Tribune

How you can avoid the hassle of private mortgage insurance

Buying a house by making a down payment of less than 20 percent can add an extra $10 to $200 to the monthly bill if you have to obtain private mortgage insurance.

There are strategies, however, to avoid private mortgage insurance.

Consider a "piggyback" loan. If you can come up with a 10 percent down payment, the other 10 percent can be supplied through a private loan - giving you the 20 percent down payment. The smaller piggyback loan often comes with a higher interest rate, but it can be a better deal after tax considerations.

Look for a lender who self-insures low-down-payment loans. These lenders, rather than charge private mortgage insurance, bump up the interest rate a quarter-point or so to compensate themselves for the greater risk of default on these loans.

If you have paid down your mortgage to 80 percent of the home's value, then the insurance can be lifted. At 78 percent, it's lifted automatically.

Get your house revalued, since price appreciation has increased steadily. The amount you owe for your mortgage may have dropped to less than 80 percent of the home's value, allowing you to drop the insurance.

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