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A Side-Effect of the Subprime Mess: Rising PMI Rates
By JLP | December 11, 2007
It looks like (some) private mortgage insurance (PMI) rates are on the increase:
PMI Group Inc., a Walnut Creek, Calif., mortgage insurer, this fall stopped writing mortgage insurance for borrowers with credit scores below 620 who are financing more than 95% of their home’s value. PMI also has boosted prices for most borrowers who have credit scores of 620 and higher with loan-to-value ratios above 95%. Borrowers with credit scores between 620 and 659 who are financing more than 97% of their home’s value face the biggest increase. The monthly premium for a $200,000 mortgage will increase by $123 to $283.
Source: WSJ – Mortgage Pain Hits Prudent Borrowers ($)
Granted that’s on a mortgage that is 97% of the value of the home’s value, but it’s still a significant increase! I would think a monthly PMI premium of $283 would price a lot of people out of the market.
The way around PMI is to have at least a 20% downpayment or have 20% equity in your home. A good credit score can also help lower your PMI premiums. Also, if you currently have 20% equity in your home, you can get PMI dropped. It might involve paying for an appraisal on your home to prove your 20% equity position. I remember reading somewhere that some states require lenders to automatically drop PMI once a borrower reaches a certain point in paying down their mortgage.
No matter how you look at it, borrowing to buy a house is getting more expensive.
Topics: Housing Market | 10 Comments »
December 11th, 2007 at 1:46 pm
I am one of the very few people that actually took out 100% loan on my house and don’t pay any PMI at all! None!! That’s a great deal for me because I double up on mortgage payments. That way my loan will be paid off in half the time.
December 11th, 2007 at 2:14 pm
[...] Administrator wrote an interesting post today onHere’s a quick excerptIt looks like (some) private mortgage insurance (PMI) rates are on the increase:. PMI Group Inc., a Walnut Creek, Calif., mortgage insurer, this fall stopped writing mortgage insurance for borrowers with credit scores below 620 who are … [...]
December 11th, 2007 at 2:16 pm
The way used to be 80/20 piggyback loans, but good luck finding them today.
December 11th, 2007 at 5:49 pm
For Iowahawk’s take on the subprime mess, follow the link below. Raunchy, but hilarious.
http://iowahawk.typepad.com/iowahawk/2007/12/please-dont-des.html
December 11th, 2007 at 5:50 pm
You only have to pay PMI on conforming loans. If you have really good credit, single loan alt-a 90-100% financing does still exist. Obviously, still not a good idea in most cases.
Depending when your loan was originated, currently the PMI has to be dropped automatically when your mortgage balance reaches 80% of the original value of your home. This could take a long time though, so if you make improvements or just get normal appreciation it might be worth it to call your lender, pay for an appraisal and get the PMI dropped if the new value gives you 80% equity.
December 11th, 2007 at 11:43 pm
1) I have no sympathy for people who borrowed 100% of the home’s value in a mortgage loan. They should have scrounged up at least a modest downpayment, especially if their credit scores are horrendous.
2) I have no sympathy for banks reckless enough to lend money to penniless people with wretched credit to buy a home they clearly cannot be bothered to save for.
3) Obviously, I’m an unsympathetic person
December 15th, 2007 at 2:58 am
[...] All Financial Matters discusses the private mortgage insurance side effect of the subprime fallout. [...]
December 18th, 2007 at 6:25 pm
100% loan and no PMI !!
Phew..the mortgage mess is not over yet!
December 19th, 2007 at 12:21 pm
there is a cheaper alternative…financed mortgage insurance. this is not available on 100% financing, but if a borrower can scrape up 5% down payment, this is a cheaper (also refundable) method of meeting the lender’s need for mi, while at the same time making payments a bit more affordable.
check with your mortgage lender for specific details, of course.
September 24th, 2008 at 9:36 am
In Sept 2005, I got a 30year, fixed rate 5.75 loan at near 100% the value of the townhome that I was purchasing $190,000. I have excellent credit and a good debt to income ratio.
I have put over $10,000 since then in improvements to the townhome, including finishing off an attic to a livable loft space.
Long story short, with the subprime mess, the value of my place has gone down significantly. I haven’t had it revalued, but its probably down around $170,000. My gripe is that I’m still paying close to $200/month for PMI on a LOW RISK loan. I will never reach 80/20 equity due to the lower home prices. If the market had not bottomed out, with the improvements that I have put in, my place would be worth around $220,000 and I would have had 80/20 equity by now.
What are my alternatives at this point?!?