“Borrow mortgage insurance is another alternative to piggyback mortgages and mortgage insurance, called a ‘‘financed premium,’’ which you should review and compare. This program allows for the borrower to buy a mortgage insurance premium and roll the cost of the premium into the loan amount in lieu of paying a mortgage insurance payment every month. This program came about just a few years ago but for some reason it’s never really gotten off the ground.
However, when compared to an 80-10-10 program it’s worth examining further. Let’s look at a typical transaction on a $200,000 home with 10 percent down. With an 80-10-10 program the first mortgage amount would be for 80 percent of $200,000, or $160,000, with the second mortgage at 10 percent of the sales price, or $20,000. Using a 30- year fixed rate of 7.00 percent on the first, and a 15-year rate of 8.00 percent on the second mortgage, the payments work out to be $1,058 and $189 respectively, for a total payment of $1,247. With 10 percent down and a monthly PMI premium, the mortgage payment at 7.00 percent on $180,000 would be $1,190, with a mortgage insurance premium of $36, for a total of $1,226.
Comparable deals in price with the exception that mortgage insurance is not tax deductible whereas both the first and second mortgages can be. Now look at paying for mortgage insurance with one premium and rolling that premium into your loan. With 10 percent down the financed premium amount cost is around $3,780. Add this number into your principal balance of $180,000 and again use the 7.00 percent 30-year rate. The new loan amount will be higher, and yes, you’re adding to your principal, but now you have one loan at $183,780 and a payment of $1,215 using the same 30-year note rate of 7.00 percent. Two things are happening here. First, the payment is lower than the other two options of 10 percent down with monthly mortgage insurance, and second, the interest on the full $1,215 payment is now tax deductible, whereas a monthly mortgage insurance payment is not.
There are some detractors of this program, but really the only drawback is that it adds to your principal balance, and the cost of that $3,780 spread over thirty years gets expensive, adding over $5,000 in additional interest. True, but there are also financed mortgage insurance programs that are refundable when the loan is refinanced. This is such a solid program I’m not certain why it’s not more popular. As a matter of fact, I used this very same program to buy my first home in Austin.
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