What is Private Mortgage Insurance?

If you're planning to take out a home loan you may have heard the phrase "private mortgage insurance' bandied about. So what is it and who needs it?

In general, a lender will require you to obtain private mortgage insurance when your home loan is worth more than 80 percent of the purchase price of the home.

Basically, most lenders consider the ideal borrower as someone who can fund 20 percent of the home price. This shows that the borrower has significant 'skin in the game' - by investing a significant amount of money in the home they demonstrate a high level of commitment to the home and to meeting their loan repayments.

Moreover, it means that should the borrower default on the loan they will have equity in the home which they can be sold and used to pay off a good chunk of the outstanding mortgage. Accordingly, by lending to such a borrower the bank is taking less of a risk than if they lend the same amount of money to a borrower without such equity.

However, the bank won't necessarily refuse to lend to you if you have less than a 20 percent down payment. What they will do to reduce their risk is to require you to purchase private mortgage insurance!

Private mortgage insurance or 'PMI' provides security for the bank in assuming the risk associated with lending to someone with less than a 20 percent down payment. This is because if the homeowner purchases PMI and they default on the loan, the insurance company will pay off the remaining balance of the loan. In turn, this means that the bank will not lose money if the borrower cannot pay their mortgage payments and end up in foreclosure.

The Federal Government has established regulations governing the imposition of PMI since it presents a significant an additional expense for consumers. In particular, the Homeowner's Protection Act specifies particular rules that lenders must follow in relation to private mortgage insurance. These rules are designed to protect the borrowers and save them money. For instance, when a lender requires you to obtain PMI they must inform you of the amounts you must pay, when you must pay these amounts, the date you can stop paying them, when the PMI will automatically be canceled, your rights to terminate the PMI, and a phone number you can call to cancel the insurance.

Although many home buyers who borrow more than 80 percent of the purchase price of a home must buy PMI, there are also other circumstances where you will also have to pay for such insurance. The most common instance is where you have a poor credit score. A poor credit score means that you are a higher 'credit risk' to the bank, such that they will desire you to have PMI.

So how much does private mortgage insurance cost and when do you need to pay it? Well, you will typically be required to pay around .5 percent of the total loan value for PMI. What's more, a lender will usually want the entire first year's premium up front at the close of the home purchase. So if you have a loan of $200,000, your PMI will cost around $1,000. In most cases, you will need to continue paying for the private mortgage insurance until you have paid at least 20 percent of the loan value down. Once you have built this level of equity in the home you will no longer be required to pay for the insurance.

Despite the additional expense presented by PMI and the obvious attraction of having at least a 20 percent down payment PMI is not all bad news. In fact, it may be a small price to pay to get into home ownership earlier rather than later. However, it's best to discuss the best strategy whether it's saving a larger down payment or using a smaller down payment and buying PMI with your mortgage planner.

Get more articles and information at http://www.VirtualREIMentor.com

Reverse Mortgage - How it Can Help

As age catches up with seniors and their retirement gross nearer, seniors should start thinking about planning for the future. There is no doubt, some post retirement benefits will help seniors, but the amount of money can be inadequate for some seniors to meet their financial expenses for each month. Unless the senior is receiving a sizable amount of money for their retirement benefits, it is unlikely they have the funds for a comfortable retirement that would enable them to travel and enjoy their silver years. All these financial requirements can easily be taken care of my means of a reverse mortgage.

Many people think of ways in which they can add substantial amounts of money to their retirement so they can live the life they have always dreamed about. Most seniors have seen ads of elderly couples traveling to exotic foreign destinations beamed across the TV screen and they too want to join in the fun and enjoy life. There is a way to take those trips and have extra money without many hassles; the parties involved just need to be at least 62 years of age to apply for a reverse mortgage that can provide the senior with financial liberty by using their home equity.

If you are a senior citizen and are above 62 years of age and have a large amount of equity in your home, a reverse mortgage can assists you in your post retirement dreams. After you receive the loan from the lender, you will not have to pay back the loan as long as you live in your home. However, if you sell your home, you will have to repay the loan. The money you receive from the loan is tax free and you retain ownership of your home. In case of your death, the person who inherits the house will need the loan if they decide to keep the house. A reverse mortgage is not dependent on your health, income or even credit history.

Many seniors may decide to use a reverse mortgage for something other than a dream vacation. Seniors may decide to use the funds towards paying off their current mortgage, some may decide to use the money for health care, or even daily living expenses. The fact that a reverse mortgage allows seniors to have their own financial security and independence makes it a very popular option. Most people veiw a reverse mortgage as a need, meaning they will only do a reverse mortgage because they need the money not because they want the money for trips.

A reverse mortgage can be quite expensive because the cost of the loan includes credit reporting charges as well as appraisal and initiation charges, inspection charges etc. add them all together they can add up to a substantial amount which is deducted from the amount you will receive. If you do not properly manage your cash, you should seek professional to help manage the money you receive from the reverse mortgage in combination with the rest of your funds.

Need Of A Mortgage Calculator

You can use a mortgage calculator to decide just how much funds you can afford to borrow. These days, a number of mortgage calculators are accessible on the Internet that facilitates you to decide your financial insinuation of mortgages.

So, basically, following should be looked in a mortgage calculator:

1. The balance that is available on the main loan.

2. The interest rate in periods.

3. The number of payment installments and the total money involved in each.

4. The sum of installments you require to make to resolve the mortgage

If you are searching a mortgage on your residence, certainly hunt for a mortgage calculator, particularly one that talks about the amounts mentioned above. You require filling out an online feedback form where you need to give such information as your income, your operating cost.

The calculator will inform you how much you are capable of having a loan of. The best element of using a mortgage calculator is that you can find that you have initiated saving considerably, may be in some thousands of bucks as the mortgage calculator will teach you about unusual mortgage loans.

You will also be able to evaluate and compute the true cost of all alternatives and carry on with the one that is the most reasonably priced one for you.

When you make use of a mortgage calculator, you not only put away on your mortgage but also on agent bill. Calculating the mortgage after bearing in mind your income and spending is a tough task.