For a home equity lender the Private Mortgage Insurance or PMI is a means to protect his investment if the borrower reneges on his home loan. For the borrower it appears an attractive option to sidestep the 20% down payment on his mortgage till he works up his equity gradually. The reality may be far removed.
- It doesn’t come cheap: Real estate brokers estimate that the average cost of a home buy stands at$220,000, and going by that a PMI could cost you $220 monthly which is no mean amount for insurance alone.
- You may not be eligible for a tax break – For married people the joint threshold is $100,000, and that means if your income exceeds this ceiling you don’t get the deductible. They have to settle for deductibles on interest on the regular home loan proceeds.
- This is NOT life insurance – Remember that this is not a regular insurance policy where legal heirs get the benefit once you pass on; here it is the lender that benefits if you default on payments.
- Why waste good money that could yield rich profits invested elsewhere? Paying a PMI for several years to work up your down payment equity is a solid waste of good money. Let’s assume you are shelling out PMI of $220 per month; the same amount if invested in the stock market at a conservative return of 8% per annum would give you substantially more savings. The difference could exceed $12,000 which is no mean amount.
- Cancelling is a hassle – Cancelling the PMI involves submitting a formal letter of request and waiting on the lender to perform a re-appraisal of the home loan, which can be time consuming.
- Are you obliged to continue payments even after fulfilling the down payment? Read the fine print to find out if the PMI has to be continued for a specific time even where you have touched the 20% payout margin.
Tackling PMI either with alternatives or with a positive outlook
- One solution is for the lender to merge expected PMI payments directly into the loan repayment so that it gets amortized over a longer period thereby reducing the payment burden on the borrower.
- If a borrower does opt for the PMI route and completes the PMI payment he can divert the amount equivalent to these payments to prepaying the mortgage in the following years
- One way of avoiding PMI is to take a piggy bank loan. In this technique you get an 80% loan approved in the normal course. The borrower then approves an additional loan of 10% of the home price. Over and above this you settle for a cash down payment of 10% that eventually fulfills your margin (20%) requirement. The only problem with this 80:10:10 approach is that the piggy loan may carry a higher interest burden and may be repayable in a shorter term
What a humble car title loan can do for you
In the final analysis it is best if the borrower can make the down payment and avoid the PMI. One solution could be to arrange a sale of unwanted or unused assets or jewelry and making up the balance required for the down payment by taking a loan for vehicle title.
The cash loan for title is one of the safest routes for getting your hands on a sizeable sum of money. The auto title loan can be considered a hassle free technique for unlocking the equity dormant in your car.
- The car title loan can be realized almost as quickly as you apply for it, and the reason is total absence of bank like formalities.
- The pawn car title loan holds the car title as collateral without touching the car, and raises 60% of the value of your vehicle as loan.
- Auto collateral loan interest rates are usually below 25% APR and they are far superior to payday loans that release lower loans for higher interest sometimes in the predatory range of 1200% APR.
Such loans can be repaid at your own pace depending on your income and loan repaying capacity.