5 Ways To Avoid PMI or Lower Your PMI Payment

Update for avoiding PMI in 2009:

Given the major changes in the current lending environment, the best way to avoid PMI today is by the lender paying your PMI.  It’s only a small increase in the interest rate and the overall monthly payment is always lower, so it helps make the payment more affordable.

Here is great example using numbers for a 30 year fixed mortgage in 2009:

Loan amount = $150,000
Interest Rate = 5.5%
Monthly Payment = $851.68 (principal and interest only)

compared to:

Loan Amount = $150,000
Interest Rate = 5.125%
Monthly Payment = $969.18 (principal, interest, and PMI only)

The difference in monthly payment is $117.50

See this post about the impact on saving just $50 on your mortgage payment.

Please leave your comments, positive or negative, about your thoughts on this program and avoiding PMI. 

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Remember, these options can be used for a new home loan or refinancing an existing mortgage. Below are 5 ways to avoid PMI if you have less than a 20% down payment or less than 20% equity in the home for a refinance.  This is quality information that most people don’t write about, so I won’t keep you waiting…     1.  Single Premium. (this option is becoming very popular)With single premium, you can pay for mortgage insurance with a single payment at closing.  This can be paid as an upfront payment or financed into the loan.  This option will usually provide significant monthly savings, so it’s a great way to avoid the monthly PMI payment.

Free forclosure listings anywhere in the country. 

Here are the benefits for this option:

• No PMI is due at closing when financed into the loan.
• A lower monthly payment.
• Possibility of qualifying for a large loan, since the monthly payment is lower.
• The premium is partially refundable when the home is sold or refinanced ahead of term.
• Only one mortgage loan, so you don’t have a high interest rate, more closing costs, and more paper work that comes with a second mortgage loan.

 BPMI (regular PMI) vs Single Premium (comparison chart to view) 2.  Free After Five. (not as popular, but guaranteed to eliminate PMI)This option automatically terminates the PMI after 5 years, provided you kept a good mortgage payment history for those 5 years.  Even if you haven’t built up 20% equity in the property, the PMI payments will be eliminated.  You will avoid PMI, while still being covered until you have 22% equity in the home.   Here are the benefits for this option:

• PMI payments are eliminated after 5 years, regardless of how much equity you have.
• You will receive continued coverage after the PMI payments have ended.
• Only one mortgage loan, so you don’t have a high interest rate, more closing costs, and more paper work that comes with a second mortgage loan.

BPMI (regular PMI) vs Free After Five (comparison chart to view) 3.  Split Edge. (a good way to lower your PMI payment)This program allows you to split the PMI with the lender.  The cost is shared through paying a refundable, upfront MI payment.  This will reduce your PMI payment and your overall mortgage payment.  It could also get you qualified for a large loan.   If you are buying a home and the seller is give you credits for the closing costs and prepaids, why not use these credits to pay for some of the up front premium and lower your PMI payment.  In turn, you will lower your mortgage payment, compliments of the seller! Here are the benefits for this option:

• Lower monthly PMI payment, in turn lowers your overall payment.
• Refundability of the unused MI premium if the loan is paid off early.
• Only one mortgage loan, so you don’t have a high interest rate, more closing costs, and more paper work that comes with a second mortgage loan.

BPMI (regular PMI) vs Split Edge (comparison chart to view) 4.  LPMI – Lender Paid Mortgage Insurance. (very popular way to avoid PMI)You can completely eliminate PMi with this program, in exchange for a small adjustment to the interest rate.  You will avoid PMI completely and not have to pay the extra monthly payment.   

Here are the benefits for this option:

• Avoid PMI all together without having that extra monthly payment.
• Mortgage interest is tax deductible, where you have to qualify for PMI to be tax deductible.  Check with your accountant for more information.
• Only one mortgage loan, so you don’t have a high interest rate, more closing costs, and more paper work that comes with a second mortgage loan.

Click here if you haven’t read my original post on how to avoid PMI.

5.  Piggy Back. (the original way to avoid PMI)This option avoids PMI by taking out a second mortgage loan.  You finance the first loan up to 80% of the purchase price (or appraised value, depending on if it’s a purchase or refinance), then finance the rest with a second mortgage.  This used to be a great way to avoid PMI, but with recent changes with lenders, second mortgages are more difficult to approve, let alone find.  Also, they come with a higher interest rate and more closing costs. 

I have always recommended one of the first 4 ways to avoid PMI, since they offer so many more benefits.

So, the next time you have less than a 20% down payment or refinancing an existing mortgage that doesn’t have 20% equity in the home, don’t forget there are other options.

If you would like to talk about getting pre-approved for a mortgage or just want to see what kind of interest rates I can offer, feel free to contact me today!

Tagged as: PMI