Mortgage Rates and Private Mortgage Insurance

Mortgage Rates Mixed With Rate Variations Regionally were mixed for the weeks ending April 20 (Freddie Mac) and April 21 (The Mortgage Bankers Association.) Freddie reported all rates up although only slightly while MBA noted small decreases.

The 30-year fixed rate mortgage, according to Freddie Mac's Weekly Primary Mortgage Market Survey, averaged 6.53 percent with fees and points of 0.6. During the week ended April 30 that product averaged 6.49 percent and 0.6.

The 15 year fixed rate mortgage increased three basis points to 6.17 percent with fees and points unchanged at 0.5.

The 5/1 year adjustable rate mortgage was up to 6.16 from 6.13 with fees and point at 0.8 from 0.7 the previous week. The 1-year ARM increased two basis points to 5.63 percent but fees and points hit 0.9, up 0.1 and a high-water mark for this figure in many months.

Frank Nothaft, Freddie Mac vice president and chief economists stated "Mortgage rates drifted upward this week following the release of the Consumer and Producer Price Indexes for March, which came in at the upper end of market expectations for inflation. As a result of higher mortgage rates, housing market activity is beginning to slow, as evidenced in the lower housing starts statistics for March."

Freddie's survey indicated that adjustable rate mortgages had slipped to 32 percent of total market activity in March as compared to 35 percent in November of last year and that, assuming the Federal Reserve continues to raise interest rates, should decline even further.

Freddie periodically issues a regional breakdown of mortgage rates as they did this week. Average rates for a conventional 30 year mortgage ranged from 6.44 percent in the Southeast to 6.62 in the North central region. Even more striking, fees and points had a range of 0.3 (Northeast) to 0.8 in the Southeast. 15-year mortgages had a narrower range, but the same two regions claimed the high and low ends; 6.12 in the Southeast and 6.23 in the North Central Region. Fees and points were spread between 0.4 in the Northeast and North Central to 0.7 in the West and Southeast.

Twenty six basis points separated the Northeast at 6.01 percent from the Southeast at 6.27 percent for 5/1 year adjustable rate mortgages. Fees and points were in much closer array - from a low of 0.6 in the North Central region to 0.9 in the West. The one-year ARM was most affordable in the Northeast at 5.53 percent while the West was at 5.73 percent. Every region but the North Central which was 0.1 lower had fees and points averaging 0.9.

The Mortgage Bankers Association reported that all rates were down slightly for the week with the 30 year fixed decreasing to 6.53 percent from 6.56 percent and points unchanged at 1.10. In the MBA survey, which includes approximately 50 percent of all mortgage originations, fees and points include the origination fee.

The 15 year fixed-rate mortgage decreased one basis point to 6.18 percent with points dropping from 1.22 to 1.11 and the one-year ARM averaged 5.96 compared to 6.0 percent with points dropping from 0.86 to 0.82. All MBA figures are for 80 percent loan to value originations.

Mortgage activity according to MBA's Weekly Mortgage Applications Survey was down 3.7 percent on a seasonally adjusted basis and 3.2 percent on an unadjusted basis from the previous week. Activity, however, was off 22.4 percent from the same week in 2005 with no adjustments made for the Easter and Passover observances.

Refinancing was up a bit as a percentage of all mortgage applications activity, representing 36.7 percent as compared to 36.4 percent one week earlier. The adjustable rate mortgage share of activity decreased to 28.2 percent as compared to 28.9 percent last week. Source from www.mortgagenewsdaily.com

Private Mortgage Insurance (PMI)

Private Mortgage Insurance (PMI) is required on all loan transactions where the loan-to-value ratio is 80 percent or greater. (Some cash-out refinance transactions require PMI at 75% loan-to-value.) This means that if you bought your house for $100,000 and had a down payment of less than $20,000, you will be required by the lender to carry PMI.

Private Mortgage Insurance insures the lender - not you - against your default on the loan. Because statistics show that borrowers who put down less than 20 percent are more likely to default on the loan, lenders require PMI so that they'll recoup their investment in case of default. Without the guarantee from carrying the PMI, the lender would not make the loan, but they're willing to take the risk as long as you carry PMI. As a borrower this may provide you with a lower interest rate loan than you could originally obtain, but the mortgage insurance premium (MIP) may not be saving you any money in the end.

How do you get rid of PMI?

Private Mortgage Insurance is of concern to the borrower because, unlike mortgage interest, PMI is not tax deductible. You pay it and you never see a dime of it again. For this reason, you will want to get rid of it as soon as possible.

When can you stop paying PMI? The lender cannot force you to keep the PMI once the loan-to-value has gone below 80 percent, however, the lender will not advise you when you are eligible to discontinue the coverage and stop making that mortgage insurance premium (MIP) payment. So what you want to do first is to take a look at your most recent mortgage statement and divide the remaining principal balance by the original purchase price of your home. If that number is below 80 percent, call the lender and find out their procedure for removing PMI. It is the responsibility of the borrower to track the debt to value ratio and make all the arrangements to stop the PMI coverage.

It is important to note that even if you haven't been paying on the loan for very long, you still may qualify for having PMI removed by virtue of appreciation. This occurs when the value of your home increases shortly after you have purchased it. The lender probably will require a full appraisal, which will typically cost you approximately $300. But you will quickly recover this cost by not having to pay the MIP and therefore canceling the PMI. After the cost is recovered, the amount you were spending on PMI goes in your pocket. You can also pay a little extra each month toward the principal to reduce your loan balance and shorten the time you must pay PMI.

How can you avoid paying PMI?

There are ways of both avoiding Private Mortgage Insurance and achieving a smaller than 20 percent down payment. Many lenders offer a loan called an "80/10/10." Instead of one loan, you get two. You'll have a first mortgage of 80 percent of the home's value, a second mortgage of 10 percent of the home's value, and you'll make a 10 percent down payment. Some lenders may even offer an 80/15/5. This may seem complicated, since you're still borrowing the same amount of money, but the lender in the "first position" is only lending 80 percent of the entire loan amount, which is less of a risk than the full loan amount. You get the small down payment and the tax-deductible interest. In addition, the total monthly payments are often smaller than one larger loan with PMI.

The other way out is to get a loan that builds the PMI into the interest rate. In this case, you agree to pay a higher interest rate in exchange for the lender loaning you more money than they normally would. It can be a nice compromise, because the interest is still tax deductible and it's simpler than doing two loan transactions. The key here is comparison. Ask your loan agent for some mortagae insurance advice. Have them run some numbers for you on an 80/10/10 and a loan with built-in PMI. Then see which one will cost less or be most beneficial based on your financial situation.

Note that these principles apply only to conventional loans. FHA loans have a Mortgage Insurance Premium (MIP), which is required for the life of the loan. Source from www.mortgagequotes.com