Mortgage Insurance is Unnecessarily Paid by Many: Realtors Can Help - Washington State Mortgage Broker

As time goes by, and homeowners mortgages season, they continue to pay a fee that is unknowingly not necessary. What is mortgage insurance?

(PRWEB) April 3, 2005 -- Mortgage insurance is established at purchase time and may be paid in various forms, such as a lump sum or higher interest rate, but most often, it is included in the homeowners monthly mortgage payment. The amount varies from $50 - $300 monthly, depending on the homeowners loan amount and the loan-to-value ratio at purchase time.

Unfortunately, mortgage insurance is not tax deductible and has no other advantage for the homeowner. The monthly mortgage statement lists mortgage insurance as a separate monthly fee, not to be confused with homeowners or hazard insurance, which insures the home from damage caused by fire or some other disaster or loss.

There are several ways to eliminate mortgage insurance:

Ask the lender to remove it. To do this, the principal must be paid down enough so the current loan-to-value ratio is less than 80% of the original purchase price. Generally, lenders are not required to remove mortgage insurance based on the homes appreciated value.

Note: The disadvantage to this method is that it takes many years to pay down the principal balance, and the homeowner may pay thousands of dollars in mortgage insurance in the meantime.

Refinance. Homes often appreciate in value over time (sometimes in four months or more), and if the homes appreciated value increases significantly enough, you can remove your mortgage insurance by refinancing, which creates a new loan-to-value ratio. This is a common procedure, although most people are unaware of it until they refinance for other reasons, and then inadvertently remove their mortgage insurance at the same time.

For Realtors: If you are a realtor, you can help your client prevent mortgage insurance when purchasing a home, and it will be to your advantage to do so. Find a creative Mortgage Broker who will pre-approve your client using a program that avoids mortgage insurance. The advantage to the realtor? If your client obtains financing without mortgage insurance, the ending monthly payment will be lower, hence, a newly qualified client, or at minimum, a higher qualifying sales price for the current client. Everybody wins!

Written by Washington State Mortgage Broker and Licensed CPA, Marie Bjornson, owner of Northern Pacific Mortgage, located in Bellingham, WA.

# # #