On June 4th, mortgage insurance companies began to split up and take different routes. With previously unimportant factors reigning over the new system, it’s important to understand what they mean for both buyers and lenders.
Mortgage insurance
Mortgage insurance is an insurance policy that compensates the lender in the case of a default on the loan. Mortgage insurance usually takes two forms: BPMI and LPMI.
BPMI, Borrower-paid mortgage insurance, is getting more popular in today’s mortgage lending marketplace. BPMI negates the need for a down payment by covering the lender the risk of a high-risk loan and must be canceled the date the loan is scheduled to reach 78% of its original value.
LPMI, on the other hand, stands for Lender-paid mortgage insurance; with mostly the same terms as BPMI but paid by the lender. This is generally reflected to slightly higher interest rates. Once your loan amount has reached below 80% of your home value, you can reach out to Loan Originator to refinance for a lower mortgage payment.
Complex changes
Prior to the change, most lenders had very similar rate and terms in relation to mortgage and lending. However, now the BPMI factors and mortgage overlays are different among lenders and MI companies than in the past.
For example, due to co-borrower and DTI ratios, Genworth Mortgage Insurance will cut it’s MI costs: a trend that is showing up in many other mortgage insurance companies, for different reasons.
Genworth may have decreased their cost for the aforementioned two reasons, but other companies may only have one; so be attentive to what your MI company factors into the mortgage insurance cost.
Some factors remain the same, such as the fact that having a higher DTI will cause your mortgage insurance to cost more. Most online pricing engines don’t have these new MI factors though, so be wary of possible differences when using them.
For those of you currently paying PMI get in touch with me and we can check to see if we can reduce the PMI cost.
