Private mortgage insurance can be a benefit to every borrower. However, borrowers need to be cautious when entering into agreements which include private mortgage insurance. Mostly, private mortgage insurance is actually designed to benefit the lender like most lending practices and may go too far if borrowers don't proceed with caution.
How Will Private Mortgage Insurance Benefit the Borrower? Private mortgage insurance allows low income borrowers--or borrowers who do not have a large amount of readily available income--the chance to purchase a home when they can only afford to put down a very small percentage on their purchase.
This allows them to not only live in a home, but to build equity and enjoy the benefits that come with homeownership. These benefits are great and can be a wonderful way to purchase a home however there are some things that potential borrowers should watch out for, so that their benefits don't turn out to be their burdens?
What You Can Do to Avoid It The downside to private mortgage insurance
is that you can get stuck paying it for much longer than you might have
expected. In 1998, the Homeowners Protection Act demanded or mandated
that every homeowner who paid his or her mortgage down to the 80% level
would have the right to request that his or her private mortgage insurance
be discontinued. The law also mandated that once the owner had paid the
mortgage down to the 78% level, then the discontinuance of the private
mortgage insurance must be automatic.
It seems like the Homeowners Protection Act has taken care of
a lot of headaches, right? The answer to that question is that YES, it
has worked to protect homeowners, although the law is only applicable
to those who make a purchase of their home on or after July 29, 1999.
So, what are the options for homeowners who purchased their homes before
that date? And what about those homeowners who are working to pay down
to the 78% level, but find that it is taking a long time (i.e. around
10 years) to do so? Some experts say that rising home prices may be the
answer to some homeowners' woes.
Rising Home Prices:An Answer to Your Private Mortgage Insurance Woes? This may not be the best solution for you and your family but many homeowners find that taking advantage of the rising costs of homes is the way that they can get rid of their private mortgage insurance. How do they do this? First they come up with a small down payment and secure a loan with private mortgage insurance.
Then, after they own the home for a little while and the home rises from about 12 to 20% in value, they can refinance their home with a typical mortgage and get rid of their private mortgage insurance. This doesn't mean that the rising prices for homes are a good thing. Many homes will often be unaffordable even with mortgages offered with private mortgage insurance. However, the 'rising home price' option does exist and borrowers should always be aware of their options.
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