Meager Income

Pay Off Debt, Retire Comfortably on Meager Income, Win the Lottery, Not Necessarily in that Order


Posted on | March 29, 2013 | No Comments

I hate Private Mortgage Insurance (PMI). I’m not sure why it is allowed to exist. The fee is paid by the borrower to protect the lender. I think that because there is no benefit to the borrower and it only benefits the lender the lender should be pay for it. I’m paying $123.50 a month and it irritates me to see this fee on the monthly mortgage statement. I wish I had known about Piggyback loans when I purchased my property.

The real problem is that the lender is lending money that it thinks it can’t get back. What I mean is that the lender should analyze the property behind the loan and only lend what it thinks it can get back in case of default. The lenders have been allowed to lend based on the income of the borrower instead of the value of the property. If the lender only lent according to the value of the property we wouldn’t have a real estate bubble.

The other problem with PMI is that lenders will try to hold on to it as long as possible.

They will force you to wait until the loan balance has dropped to below 78% of the original value according to schedule or force you to pay for a new appraisal once the value of the mortgage is less than 80% of the appraised value of the property. The appraisal is going to cost you a few hundred dollars if your loan is serviced by Bank of America and as far as I can tell it seems to be a subsidiary of BofA. More details on PMI can be found here.

In my situation it appears that over the life of the loan I’ll be paying $14,820 for PMI. To avoid this, I highly recommend that you get what is known as a “piggyback loan or piggyback mortgage.”

What this does is you get a primary loan for 80% of the cost of the property and then a second loan for the other 20%. Some lenders are now requiring a 10% down payment and a 10% second loan. The additional benefit is that as a borrower you’ll be able to lower your house payment by paying off the additional loan. Otherwise, the only way you’ll be able to reduce the payment (if you opted for a traditional fixed mortgage payment) is to refinance the loan. With interest rates on the rise, if you were fortunate to lock in a low rate I doubt you’ll want to refinance again in the near future.


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