News, updates, and explanations to keep you informed.
Mortgage Insurance and the Obama Mortgage
If you have a Fannie Mae/Freddie Mac loan or conventional mortgage and are seeking homeowner relief through an Obama mortgage, you'll discover there are many questions to answer during the application process. You’ll need to provide information about your payment history over the last year, the value of your home, and the status of your mortgage--whether you have a conventional loan, Fannie Mae or Freddie Mac.
Borrowers have their own set of questions; if you’re trying to refinance under the Obama mortgage (also known as the Home Affordable plan) one thing that might be on your mind is mortgage insurance.
Lenders who provide conventional mortgages often require the borrower to carry mortgage insurance, especially when there are low down payments involved. This protects the lender in case the borrower goes into default or foreclosure. Those who take out FHA home loans, mortgage insurance is provided by the FHA. The borrower does not pay a monthly insurance premium to a private mortgage insurance company as part of the FHA loan. The FHA may charge the borrower an upfront mortgage insurance premium, but these costs are usually lower than comparable private mortgage insurance payments. Those who make high down payments may not be required to carry mortgage insurance; the lender already has protection thanks to a larger amount of money up front.
For those who do carry mortgage insurance, the amount of the premiums does increase your total monthly payments. Can the Obama mortgage help you lower your monthly expenses even with mortgage insurance?
When refinancing under the Obama mortgage homeowner relief program, you will be asked to provide information on your current loan, including the terms of any mortgage insurance you carry. Homeowners who currently pay mortgage insurance will be required to carry the same amount for the refinancing loan issued under the Obama mortgage program. Loan holders who don't currently have Private Mortgage Insurance or PMI will not be required to start private mortgage insurance.
If you carry private mortgage insurance and refinance with an Obama mortgage, the combination of your mortgage insurance payments and the new mortgage payment may not create lower payments. This is especially true if you are currently paying the introductory or teaser rate on a new home loan. But don't dismiss the Obama mortgage because of this--refinancing from a variable rate mortgage or conventional loan does save help borrowers money over the lifetime of the loan. There will be no danger of dramatic interest rate increases due to volatile housing market conditions, and once you are no longer required to pay mortgage insurance (which depends on how much you put down and how much equity you have accumulated in the property) your payments will decrease.