Buying out Mortgage Insurance vs. Paying Monthly

For those that put down less than 20% on a conventional loan or finance with an FHA loan they are required to pay mortgage insurance. MI is calculated on the amount of down payment so the less you put down the higher the factor and monthly payment.

Example

5% down conventional the factor to determine the payment ranges from .72 - .94% or on a $150,000 loan , $150,000 x .72% = $90 per month.

3.5% down FHA the factor is 1.15% (as of 4/18/10) $150,000 x 1.15% = $143.75

If your credit score is high and you've managed your monthly credit debts well there are other options. We have multiple MI companies that offer a reduced monthly payment or a single premium upfront and they buy out the MI altogether.

Example

High credit score and low debt customer with 5% down payment on a conventional loan

Monthly MI factor is .55%, $150,000 x .55% = $68.75 per month
Super Single buyout is 1.34%, $150,000 x 1.34% = $2,010 in closing fee buyout
(When you buyout the premium up front there is no monthly MI payment)

If you divide the $2,010 single premium by the monthly MI payment of $68.75 and if you love in your home 29 months after your purchase, it would've made sense to buy out your MI premium upfront. That is, if you had the funds for the additional cost.

Many customers have never heard of this option and I pride myself in looking at multiple options for every customer. We have relationships with multiple MI companies that may have the right product for your situation.

Call Brian Parkinson at 612-282-5863 for additional financing expertise.