When you are applying for an Arizona home loan, you want to get the lowest rate possible, but you also want to keep as much money in your pocket for those unforeseen circumstances. If you are unfamiliar with mortgage insurance, it is essentially protection for the lender, not the consumer, in case you default on your loan. In most cases the mortgage insurance has is between 30% and 15%. Mortgage insurance is required if there is generally less than 20% equity. In other words, if you were to put down 20% at the time of the loan acquisition, then you would not be required to take mortgage insurance. However, most home buyers looking at an Arizona home loan don’t have that much to put down. For example, if you were interested in a $250,000 home, you would have to put down $50,000 to avoid the mortgage insurance requirement.
Benefits of having the lender pay your mortgage insurance.
This may sound a bit complicated, so bear with me for a moment. The mortgage insurance is actually provided by a third party, not your financial lender. See the example above. If you were to pay a monthly premium for your insurance, you might have to pay $92 a month if your loan amount was $225,000 with 10% down. Notice that the interest rate would be a little higher on the Lender paid scenario but the NET savings would be estimated at $50 per month on your mortgage payments. Calculated over 5 years, or when you may have reached that 20% full payment on the mortgage amount, that would add up to nearly $3,000.
After the standard mortgage insurance falls off (estimated 5 years in our example) the lender paid mortgage insurance mortgage payments will be $32 per month more. If you take the $3000 saving you would have accumulated over the 5 years and then divided it by the difference in payment ($32/month)between the lender paid interest rate and the borrower paid interest rate, you would come up with a breakeven of nearly 8 years (94 months) on top of the the initial 5 years. In conclusion, the total mortgage payments of a borrower who elects to have standard paid mortgage insurance VS lender paid mortgage insurance will finally have more savings after nearly 13 Years from the beginning of the loan.
Mortgage insurance is just one more expense that home buyers now have to deal with as a result of the mass of foreclosures during the past six years. When you are looking for an Arizona home loan, this requirement can become a burden to some. If you want to avoid that extra significant fee every month, simply request Lender Paid Mortgage Insurance. Your lender may not approve the request, but you should press for it.
If you want to learn more about mortgage insurance and how to get the best deal on your Arizona home loan, contact a qualified broker today.