Reduce Your Down Payment using PrivateMI

ARA) - With mortgage interest rates at historic lows, and forecasts of home prices remaining sound over the next two years, now is the perfect time to buy a new home. However, for many people, coming up with the typical 20 percent down payment can be a stumbling block to home ownership.

Consumers should know that it is possible to finance a mortgage with a down payment of less than 20 percent through variety of loan products such as government-insured loans from FHA and VA as well as more-flexible privately insured conventional loans.

In addition, some loan originators have been promoting so-called "piggyback" loan structures which require a first and second mortgage totaling an amount equal to at least ninety percent of a home's purchase price.

For many typical home buyers, a single mortgage with cancelable PrivateMI makes more sense than "piggyback" loan deals. The Mortgage Insurance Companies of America (MICA) notes that "split" loan structures such as 80-10-10 mortgages have very real downsides for a number of families.

In an 80-10-10 loan, the home buyer puts 10 percent down, borrows another 10 percent through a second mortgage (with a higher interest rate) and finances 80 percent through a conventional mortgage. Alternatively, PrivateMI enables home buyers to put down as little as 3 percent and even less for qualified borrowers. Once enough equity is achieved along with a good payment history, PrivateMI premiums can be cancelled.

"When comparing costs between a single mortgage loan with PrivateMI and a first and second trust in an 80-10-10 structure, the loan with PrivateMI is, in most cases, less costly to the borrower over the life of the loan," said Suzanne C. Hutchinson, MICA executive vice president.

A comparison between 80-10-10 loans and PrivateMI shows:

* 80-10-10 loans are not cancelable. Payments on the second mortgage do not stop until the loan is paid in full, while PrivateMI payments can be cancelled when enough equity is accrued. Borrowers also may receive a refund of PrivateMI premiums, depending on the payment plan selected at origination.

* Home equity grows faster with PrivateMI. Equity accrues faster using a loan with PrivateMI than with an 80-10-10 since more of each monthly payment goes toward reducing the principal balance (due to lower interest costs). In addition, 80-10-10s create a second lien at origination, meaning that borrowers will find it more difficult to tap their home equity for other things such as college tuition, furniture or home improvements.

* PrivateMI generally costs less over the life of the loan. When comparing costs between a single mortgage loan with PrivateMI versus an 80-10-10, the loan with PrivateMI typically results in lower monthly payments and lower life-of-loan costs. When cancellation is factored in, the savings are even greater.

* 80-10-10 loans often have balloon payments which cloud the financial horizon. While originators of 80-10-10s typically amortize the second "10" over 30 years to minimize monthly costs, they "call" the mortgage after 5, 10 or 15 years. This results in a balloon payment that most borrowers will have to pay either by tapping their home equity or by obtaining a new loan, often at less favorable terms.

* A single mortgage loan with PrivateMI is more predictable than a piggyback loan with an adjustable rate. Many 80-10-10 structures use introductory adjustable interest rates to keep down costs. However, when interest rates rise, homeowners find that their total monthly mortgage payment increases as well. In contrast, a single mortgage loan with PrivateMI represents a fixed cost.

"Prospective homeowners should investigate all their financing options, and they will usually find that a single loan with PrivateMI is a better deal for them than an 80-10-10," Hutchinson said. "Online calculators on MICA's Web site,, can show people how PrivateMI can help them get into a home sooner and for less money down."

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Courtesy of ARA Content


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