PRIVATE MORTGAGE INSURANCE

Michael Holigan: When you purchase a home, unless you put 20% down you normally pay something each year called P.M.I., Private Mortgage Insurance. Now this reduces the risk to your lender, but it does not help your pocketbook. But there is a way you can avoid P.M.I. without putting 20% down. When Tess and Mike Zbuchalski shopped around for a mortgage, they knew one thing - there was no way they were going to pay Private Mortgage Insurance.

Mike Zbuchalski: I look at it as kind of a penalty in terms of paying something that I don't get to write off either as interest on my taxes. It's really an insurance for the mortgage lender.

MH: Lenders consider people who aren't giving them a 20% down payment a bigger risk than those who invest more of their own cash. By making the homebuyer pay P.M.I. insurance the lender feels safer. But, P.M.I. can cost you a lot. On a $100,000 home you'll pay about $400.00 for P.M.I. the first year and slightly less thereafter. And unlike the interest charged on your loan P.M.I. is not tax deductible. Mike and Tess avoided P.M.I. by taking out a second loan. That loan along with their cash deposit adds up to the 20% down payment.

Tess Zbuchalski: Our first note is for the majority of the mortgage and then we have a second lien at a slightly higher rate, but a 15-year payback.

MH: The Zbuchalski's can deduct the interest they pay on their second loan. And because they're paying off the second note in only 15 years, not 30, they're building up equity faster too. If you're already making payments on a home with Private Mortgage Insurance, you can have it removed once you build up 20% equity in that home, whether it's from the value of the home rising or by paying down what you owe on that home. Now mortgage lenders are not going to volunteer to remove the P.M.I.. You need to go out and get an appraisal. It normally cost a few hundred dollars, less than one year's payment on most P.M.I.'s.

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Episode 57 1997 - 98 Season

| Kitchen Makeover II | Handicapped Housing | Refinishing Tile | Private Mortgage Insurance |

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