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| "I can get rid of Mortgage Insurance?!? Whhhaaattt???" |
We don’t usually talk about refinancing much because the
purchase market is so fantastic right now but I wanted to share an experience I
recently had with a client that was confused about Mortgage Insurance……………..
My client was referred to me because she had been making her
monthly mortgage payments for over 5 years and she was still paying
monthly Mortgage Insurance, which was included in that payment. My referral source wanted her to sit down
with me and see what options she might have to remove the monthly Mortgage Insurance. When I talked to the client about doing this
I could tell she was a little hesitant so I asked more questions to make sure
she understood what I was talking about.
I discovered that she thought that Mortgage Insurance was the insurance
that would cover the costs if a natural disaster happened to her house. This is a VERY common misunderstanding. I explained that there is a difference between
Mortgage Insurance (Also known as PMI – Private Mortgage Insurance on a conventional
loan and MIP – Mortgage Insurance Premium on an FHA loan) and Hazard
Insurance. Let me share how I explained
the difference to my client.
Home insurance, also called hazard insurance or homeowner’s
insurance, is a type of property insurance that covers a private
residence. It is an insurance policy
that combines various personal insurance protections, which can include losses
occurring to one's home, its contents, loss of use (additional living
expenses), or loss of other personal possessions of the homeowner, as well as
liability insurance for accidents that may happen at the home or at the hands
of the homeowner within the policy territory.
It is always a good idea to sit down with your insurance agent and find
out exactly what your home owners policy covers. I have a client I’m working with right now
that had experienced a fire several months ago and she is in the midst of
working with the hazard insurance company to get the contents and structure of
the home covered….. I’ll write more about this as it unfolds but this gives you
an idea of what the purpose of Hazard Insurance is.
Now the confusion I find is usually about Mortgage Insurance. What the heck is that and why do you pay that
every month? What does it do for
you? The answer is, unfortunately, it does
nothing for you. Mortgage Insurance is
about the lender. It protects the
mortgage lender against losses that may result from you defaulting on your
mortgage. The benefit to you in having
mortgage insurance is that you probably didn’t have to come up with a giant
down payment. You were able to put less
money down as a down payment in exchange, you pay a monthly Mortgage Insurance
payment. This extra insurance allows the
Mortgage lender to feel more comfortable lending on your home with less equity
investment from you. The important thing to remember is that once
your home has at least 20% equity in it, either from you making all your
payments on time or market appreciation…. Or both…. You will want to do
yourself a favor and get rid of that monthly Mortgage Insurance payment.
In my client’s case we were able to refinance her into a 15
year fixed loan, cutting 10 years off her mortgage and saving her about $50,000
in interest payments and the great news is that her mortgage payment only went
up about $12/month. “What??? It went up???
You’re supposed to say it went down!!”
Well, think about it…. We were able to get rid of the monthly Mortgage Insurance Payment (usually anywhere from $150-$200 a month) and we shortened the amount
of years she will now be paying her mortgage.
This is why there was an increase in the payment. Would you pay an additional $2160 (that's $12 a month for 15 years) to be able
to pay off your mortgage 10 years faster and save yourself $50,000 in interest
payments?? Well, my client thought it
was a great idea. She was already used
to her payment so it wasn’t a stretch to add an additional $12 to her payment
each month and now she’s on track to pay off her loan in 15 years (or sooner if
she makes additional payments) as opposed to 25-30 years.
If you are wondering about whether you have mortgage
insurance or not….. or if you have enough equity to get rid of that monthly Mortgage
Insurance payment then reach out and let’s see what your options are. – Sheri Joi, email sherijoi1972 at gmail dot com
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