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Some aspects of home mortgages just doesn't make sense..

S

SillyClown

Member
My wife and I have lived in a small "starter home" for a little over 4 years now. Instead of moving we thought maybe refinishing the attic would be a good idea. We got the estimate and it seems relatively inexpensive to make a bunch of extra living space. So here goes the loan process.

We've called several places and for the types of loans they want us to apply for we are required to pay private mortgage insurance. Well we don't pay that now but with this extra amount we want a loan for they are saying it's required. It's over $1000 a year for this dinky house. Mortgage + Homeowners Insurance + Taxes = Already a large amount of money.

When we asked the individuals about why this private mortgage insurance is required they said, "...a high percentage of individuals that have around the same small amount of equity built up in there home sometimes default on payments....this is a way to protect the bank"

My brain doesn't function the same as a lenders...or banker ...all I see is an illogical solution to problems banks face with irresponsible or unfortunate homeowners.

"Hey, I got an idea! Since there is a percentage of people that have trouble making a house payment let's add even LARGER number to that bill they get every month. That will make them want to pay us even more!!"

I know...I know...maybe I am an idiot. But please explain to me why this PMI is really necessary if our credit is in the top 10% (that's a number the bank gave us) and we have no past due balances on ANYTHING.

/end Rant
 
Usually PMI is required if the loan is greater than 80% of purchase price or current value.
But that's not the best part: even if your home quickly appreciates in value to where the loan is less than 80%, you often are not eligible to dump PMI until two years has passed since loan origination.
 
They are probably basing all of their loan numbers on your current outstanding balance, amount you want to loan and comparing it against the most recent valuation of your home (loan to value ratio).
To the bank you and your house are nothing more than an investment, they are taking every precaution to protect that investment. Banks lose amazing amounts of money when people default and eventually are foreclosed upon. PMI is typically only required when you push your LTV (loan to value ratio) past 80%. The borrowers who fall into the group of over 80% LTV have very high rates of default and foreclosure. It would be nice for you if they could cherry pick their preferred borrowers and loan packages, but it's typically not cost effective.

Another line of logic is that if a person fails to pay their mortgage, which is typically the #1 priority, is most likely going to have compounding issues in the future and pose a great risk to the banks bottom line investment.
 
Sometimes instead of a total re-finance of the original loan (to include the extra cash for the home improvement), you can get a second for the amount extra you want to borrow, and that eliminates the PMI (but then there's all the loan origination fees, etc. for the second loan).
You should check ING for financing, since the fees are much much less.
 
The banks look at their statistics and say, "Hmmm it looks like people that have to borrow more than 80% of the value of their home are a greater risk for us. Let's insure ourselves againt a potential loss."

Good thinking. Even better is the part that they decided that in order to pay for the insurance, they pass the bill onto the person that is 'requiring' them to buy that insurance ... the borrower.

If they didn't have the insurance, they would be much less likely to issue the loan, since it is 'riskier'. So, the borrower gets stuck paying higher amounts for the 'riskier' loans.

So everything is roses from the lenders point of view.

Personally I still think it stinks that the borrower gets stuck paying an insurance premium for a policy that they will never ever see the benefit from (other than the fact that the existance of the policy allows them to find a lender).

 
Thing is, once the loan is less than 80% of the home's value, you still can't get rid of the PMI unless (usually) 2 years has gone by, and you have to pay for an appraisal. Once you start that process, it takes about 2 months b/c the lender drags its feet.

If the borrower defaults and the loan is less than 80%, the lender will recover all their money; so the two year waiting period is total BS to extract money from the borrower.
 
There is some variation in the terms for dropping PMI. My lender was willing to drop after one year but I had to get an appraisal that showed a 75% or better LTV ratio. And yes, they were in no hurry to drop the premium.
 
If you are paying PMI, then you need to get a better Mortage Broker. They have tons of options and ways of setting it up so youdon't have to pay PMI. We got our first hosue and just had two loans. One for the down payment and one for the mortgage. Voila, no PMI. PLenty of other options as well.
 
My wife and I purchased our first house last year and we're stuck with PMI as well.

One thing that I was advised on (if you don't know it already) is once the LTV ratio drops below 80%, you have to request for PMI to be dropped. Otherwise, you'll be stuck paying the premiums until you remember to remind them to drop the PMI.

I'm not so sure if that's correct, but I did get it from a reliable source. Either way, seems kinda devious to me.
 
Originally posted by: BEL6772
The banks look at their statistics and say, "Hmmm it looks like people that have to borrow more than 80% of the value of their home are a greater risk for us. Let's insure ourselves againt a potential loss."

Good thinking. Even better is the part that they decided that in order to pay for the insurance, they pass the bill onto the person that is 'requiring' them to buy that insurance ... the borrower.

If they didn't have the insurance, they would be much less likely to issue the loan, since it is 'riskier'. So, the borrower gets stuck paying higher amounts for the 'riskier' loans.

So everything is roses from the lenders point of view.

Personally I still think it stinks that the borrower gets stuck paying an insurance premium for a policy that they will never ever see the benefit from (other than the fact that the existance of the policy allows them to find a lender).
Click to expand...

But you have to look at it from their prospective. They're the ones taking the risk. Therefore they insure that risk.

I've read many articles/trends that people are using their home as a piggy bank. That needs to stop. Stop borrowing money on perceived gains, because it is a recipie for disater.
 
Originally posted by: FrankyJunior
If you are paying PMI, then you need to get a better Mortage Broker. They have tons of options and ways of setting it up so youdon't have to pay PMI. We got our first hosue and just had two loans. One for the down payment and one for the mortgage. Voila, no PMI. PLenty of other options as well.
Click to expand...

We're doing the same thing.
 
Originally posted by: FrankyJunior
If you are paying PMI, then you need to get a better Mortage Broker. They have tons of options and ways of setting it up so youdon't have to pay PMI. We got our first hosue and just had two loans. One for the down payment and one for the mortgage. Voila, no PMI. PLenty of other options as well.
Click to expand...

What is the rate on your piggyback?

It's a great approach, but that could cost you more in the long run.

-edit-
paging Dr. Vic. Dr. Vic, please report to the thread.
 
You didn't ask me, but 7% on the mortgage and 10% on the piggyback. $250k total maximum.

No, we don't care. First mortgage and we want in.
 
Forgot this: We're leaving the area and selling within 6 years and will get a regular mortgage then.
 
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