A lot of lenders are touting their “10% down with no Private Mortgage Insurance (PMI)” financing options. JVM, of course, offers this too but we don’t often encourage it b/c it is not the best option for most borrowers.
Lenders offer higher loan-to-value loans with no PMI by simply pushing up the interest rate and using the extra “yield premium” from the higher rate to purchase single payment PMI insurance.
Many people don’t realize that PMI can be paid in monthly installments or with a single installment at close of escrow.
The interest rates for the no PMI loans are 0.25% to 0.625% higher than they would be for a loan with PMI.
So, while borrowers avoid PMI, they are stuck with the higher rate for the life of the loan no matter how much equity they accumulate.
If a borrower instead opts for the lower rate with PMI, he can get out of the PMI obligation in a few years (when equity accumulates) and then enjoy a lower interest rate for the remaining life of the loan.
The PMI option is even more appealing now that “Arch MI” is offering discounted PMI premiums for strong borrowers.
Jay Voorhees
Founder/Broker | JVM Lending
(925) 855-4491 | DRE# 01524255, NMLS# 335646
