Second Mortgage

Several readers have been asking when they can cancel their private mortgage insurance.When a homebuyer's down payment is less than 20 percent of the purchase price, the lender often requires the homebuyer to purchase private mortgage insurance, or PMI. PMI protects the lender against a deficiency in case the borrower defaults and the home does not bring enough money at a foreclosure sale to pay the lender in full.PMI is expensive -- $25 to $65 a month on a $100,000 loan. The cost of PMI is added into the homebuyer's monthly mortgage payment.

Dear Mr. Azrael:I'd like to know if there's any way that I can purchase a house using my own home as equity without having to make any significant down payment. I presently owe about $13,000 on a $160,000 home. Thank you.Curt GlobalFallstonDear Mr. Global:Your home has substantial equity. Equity is the difference between the value of your home and the amount owed on it. Assuming you have good credit, you easily should be able to borrow 60 percent to 80 percent of the equity in your home. This borrowing power could be used to provide a down payment for purchasing a second home or investment property.

IF YOU'RE buying or refinancing a house, and putting less than 20 percent down, the bank requires you to buy mortgage insurance. This guarantees that the lender won't take a major loss if you default.But banks are getting more aggressive. They'd like to lay hands on the money you're paying to the insurer.So in place of mortgage insurance, many are offering something called a piggyback loan. You pay a higher interest rate on asmall part of the money you borrow. That higher rate helps offset the bank's losses from defaults.

A NATIONWIDE price war has broken out among lenders, homebuilders and mortgage insurers for the business of TC once-neglected group of consumers: homebuyers who can afford no more than a 10 percent down payment, but who also don't like the idea of making monthly mortgage insurance payments. If you fit the description, you might be able to cash in.Traditionally, buyers who can't come up with a 20 percent down payment have been forced to purchase private mortgage insurance (PMI) to cover the lender's heightened risk of loss in the event of default or foreclosure.

The House of Delegates yesterday rejected a controversial bill that would have deregulated Maryland's mortgage industry, legislation that opponents said would have removed protections for borrowers from state law.On a vote of 66-66, the House failed to reach the majority of 71 needed to pass the bill, which would have changed a host of laws governing the regulation of second-mortgage brokers, lenders and bankers.House leaders said last night that there may be an attempt to reconsider the vote later this week.

WHEN JOSEPH Yu and his wife Nadia took out a new loan on their townhouse earlier this year, they had no idea they were tapping into the hottest new trend in the American home mortgage market."

PARENTS AND grandparents who want to help their kids scrape together money for a home-purchase down payment now have a new, legally sanctioned way to do it: They can lend them the cash and even charge interest on it.Tucked away in Congress' massive funding bill approved in the closing hours of this year's session was a long-awaited rule change covering Federal Housing Administration (FHA) mortgage applications. Originally proposed three years ago by Rep. Bill Orton, D-Utah, the change eliminates the barriers to intrafamily down payment assistance.

Dear Mr. Gisriel:I'm thinking about buying a house instead of continuing to rent. Could you briefly summarize the tax advantages of homeownership?Bob MeyerPikesvilleDear Mr. Meyer:Homeownership gives the buyer several major tax benefits that provide a powerful incentive to buy real estate.Owning a home is one tax shelter within reach of most Marylanders, especially if use is made of one of the many first-time homebuyer programs available from private or government sources.L The following are the major tax advantages of homeownership:* Mortgage interest deduction: All interest paid as part of your monthly mortgage payment is deductible from gross income, before you compute your net taxable income.

Q: I'm thinking about buying a house instead of continuing to rent. Could you briefly summarize the tax advantages of homeownership?Bob Meyer, PikesvilleA: Homeownership gives the buyer several major tax benefits that provide a powerful incentive to buy real estate.Owning a home is one tax shelter within reach of most Marylanders, especially if one of the many first-time homebuyer programs available from private or government sources is used.The following are the major tax advantages of home ownership:* Mortgage interest deductionAll interest paid as part of your monthly mortgage payment is deductible from gross income, before you compute your net taxable income.

Q: I'm thinking about buying a house instead of continuing to rent. Could you briefly summarize the tax advantages of homeownership?Thomas DeBlase, OdentonA: Homeownership gives the buyer several major tax benefits that provide a powerful incentive to buy real estate. Owning a home is one tax shelter within reach of most Marylanders, especially if one of the many first-time homebuyer programs available from private or government sources is used.The following are the major tax advantages of home ownership:* 1. Mortgage interest deductionAll interest paid as part of your monthly mortgage payment is deductible from gross income, before you compute your net taxable income.

Two women beset with health and financial problems were facing imminent foreclosure on their Ellicott City homes when they thought rescue was at hand. Betty J. Bullock, 63, had poor eyesight and diabetes for years and lived on about $800 a month in Social Security. She had no savings and hadn't worked since 1997. Griselda Mason, 68, also had vision problems and trouble walking, which limited her ability to work. She fell behind on mortgage payments, which ruined her credit and brought the threat of foreclosure.

Everybody wants to help keep people in their houses and out of financial stress and foreclosure, right? That's what the Bush administration says, and that's what top executives of major banks, mortgage companies and Wall Street investors all say. But where the proverbial rubber hits the road -- at the point where individual homeowners seek to refinance or modify their mortgage terms -- things may look different. Take the case of Robert Whittaker, a Sykesville homeowner who sought to refinance a $260,000 first mortgage recently when 30-year rates fell below 6 percent.

If you bought a house in recent years without a big down payment or without a second mortgage, you're probably paying for private mortgage insurance every month. But you don't have to forever. You can qualify to cancel it if you've made enough payments, raised the value of your property with home improvements or (rarer and rarer nowadays) live in an area that is seeing strong gains in sales prices. One or more of those options can get your loan balance down to 80 percent of the value of the home when you got the loan, the magic number.

Like many single parents, Ashby Alexander struggles to balance the financial priorities in his life. He has helped a daughter, Brooke, 25, through college and part of graduate school and wants to do the same for his 10-year-old son, Jordan. "I'm a proud father, and their schooling is paramount to me," the 45-year-old Hampton, Va., resident wrote in a letter requesting a Money Makeover. But there are other priorities: Alexander needs to pick up the pace on his retirement savings, pay off a second mortgage and cut down on overspending.

An Essex man has sued Baltimore-based Provident Bank, claiming it illegally charged him a prepayment fee when he refinanced a second mortgage last year. Andrew Bednar's suit was filed last month in Baltimore Circuit Court. The case seeks class action status, saying other customers of Provident Bank of Maryland have been similarly affected. According to the lawsuit, Bednar took out a $17,000 second mortgage from Provident in August 2003. Provident agreed to waive $681 in closing costs provided that Bednar kept the loan for three years.

AS A SELF-STYLED hipster, I was somewhat perturbed when a new trend caught me off guard this spring. Another school year is closing and students are lining up residences for the fall. I learned that my friends are purchasing homes, and I'm not. At first, I suppose I was slightly jealous. I can't afford a house. But as I thought more about it, I realized that neither could they. This piqued my economic curiosity. So I looked harder at what was going on around me. My earlier perturbation turned to concern as I listened to my friends' responses and saw new, disturbing trends emerge.

Newlyweds Michelle and Samuel Riccobono knew that without a 20 percent down payment for a house, they would face the added expense of private mortgage insurance. They weren't sure they could afford that. A mortgage broker showed the Philadelphia couple how they could avoid the cost of private mortgage insurance and cut their monthly payments: a piggyback loan. Instead of going with a 100 percent mortgage as they had planned, the Riccobonos opted for an 80 percent first mortgage with a second mortgage for the remaining 20 percent "piggybacked" on. That decision saved them about $250 a month because of the lower interest rate they got on the primary mortgage, Michelle Riccobono said.

HOMEBUYERS WITH high credit scores but minimal down payment cash are about to get a new, potentially helpful mortgage option. It comes with a catchy name - the "SingleFile" low down-payment mortgage. But it also comes with some wrinkles you need to know about upfront. SingleFile loan down payments can go all the way to zero. Maximum mortgage amounts can extend well into the jumbo category: $650,000. However, you need to have a FICO credit score of 700 or higher - a tough hurdle for some buyers short on cash.

Some readers ask whether there is any way to cancel mortgage insurance on Federal Housing Administration loans. Mortgage insurance on FHA loans does not automatically cancel even if the loan-to-value ratio has improved substantially. This is different from private mortgage insurance. With FHA loans, you must pay the monthly mortgage insurance premium as long as you own the home or keep the loan. But in the current real estate market, with rising home values and low mortgage interest rates, folks who are paying government mortgage insurance should investigate refinancing to a conventional loan which does not require mortgage insurance.

A reader asks if there is a standard rate for mortgage insurance and how to calculate it. Dear Reader: Mortgage insurance protects a lender against loss if the borrower stops making mortgage payments. Most lenders or investors require mortgage insurance when the mortgage amount exceeds 80 percent of the property value. FHA loans are covered by a mortgage insurance program administered by the federal government. Private mortgage insurance is sold by a number of companies - Mortgage Guaranty Insurance Corp.