We frequently get Realtors and borrowers who are excited about the prospect of garnering “95% loan-to-value financing with no Private Mortgage Insurance.” We invariably pop their bubbles, and this is why.
To get 95% LTV financing with no MI, we and/or the lender simply jack up the rate to get enough extra yield premium or rebate to pay a “Single Premium” MI fee (in lieu of a monthly premium) for the borrower.
But the borrower is stuck with that higher rate for the life of the loan. If the borrower instead takes a lower rate with monthly MI, the borrower can get out of MI (when his LTV hits 80%) and then have the lower rate with no MI for the remainder of loan’s life.
Interest rates for a 95% LTV loan with “No MI” tend to be about 1/2 to 5/8 percent higher than rates for loans with monthly MI.
MGIC’s monthly MI rate for a 95% LTV loan is 0.67% (assumes high FICO and loan under $417,000).
In other words, we advise taking a 3.75% rate plus 0.67% monthly MI in lieu of taking a 4.25% rate with no MI. Once you get out of MI, you have a 3.75% rate forever. And b/c we are bullish on Real Estate, we think appreciation is likely and getting out of MI is likely.
Founder/Broker | JVM Lending
(925) 855-4491 | DRE# 01524255, NMLS# 335646