Alternatives to Private Mortgage Insurance (PMI)
Conventional loans with equity or a down payment of less than 20% usually requires private mortgage insurance (PMI). However, there are some pretty good alternatives to PMI.
Piggyback or 2nd TD Home Loans
Many lenders will allow you to avoid private mortgage insurance (PMI) by combining a first mortgage and a ‘piggyback’ second mortgage, home equity loan, or home equity line. This way you can reduce your monthly payments below a loan with PMI.
Often you can put a down payment of as little as 5 to 10%.
There are excellent benefits to this approach vs. paying PMI. You will have:
- A Lower Loan Payment
- Possible tax deductibility of interest. PMI is not deductible.
- Possibility
of Lower Interest by keeping your 1st loan within conforming loan
limits.
Self-Insured Loan
Other options include getting the lender to build the risk of the loan into the rate of interest (MI included in loan). Thus you pay a higher rate but no PMI. Often the payment will be higher going the self insured route but the after tax cost, of the self-insured loan will probably be lower.
Some lenders will even let you reduce the rate when the loan is paid down to 80% loan to value (ltv).
The
only other thing to consider is that you can often times cancel
your PMI once it reaches 80% ltv.
*for tax advice or any advice pertaining to the above subject matter, please seek the advice of a tax professional.
