Mortgage Insurance... Why?

Discussion in 'The Pub' started by tremonti, Jan 23, 2015.

  1. tremonti

    tremonti Member

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    Why do we pay for someone else's Insurance policy? Mine is $212 a month! That's more than the homeowner's policy and the taxes per month! We pay for the banks policy on our home...... Crazy. I know..... Bigger downpay and don't have to.... But still.
     
  2. ChrisVereb

    ChrisVereb Member

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    ...because otherwise why would they take the risk in writing the loan?

    edit - that insurance amount doesn't mean much in isolation. the amount will depend on the home value, amount mortgaged, and their perceived risk in lending to you.
     
  3. pickaguitar

    pickaguitar 2011 TGP Silver Medalist Silver Supporting Member

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    Can't wait for my pmi to go away
     
  4. sleewell

    sleewell Member

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    hey those poor banks need to make money too!

    you should just put more down or buy something cheaper or suck it up and stop complaining about it.
     
  5. Steve Dallas

    Steve Dallas Supporting Member

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    I have never paid PMI. $212 a month makes me feel better about the fire insurance on my rental, though.
     
  6. fetishfrog

    fetishfrog Member

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    Charge your bank a fee for insurance as protection from them prematurely foreclosing on your home. Seems fair given recent history and all.
     
  7. aynirar27

    aynirar27 All You Need Is Rock and Roll Gold Supporting Member

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    damn that must have been an expensive house. I'm going through this now actually. We are shopping around for homes now and I'm debating if I want to put up a big enough nut up front to forgo the PMI or not. Stressful crap.
     
  8. therhodeo

    therhodeo Member

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    Glad that our mortgage doesn't require one.
     
  9. chrisjw5

    chrisjw5 Supporting Member

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    You only pay PMI when you don't have 20% to put down.

    As 2007 and onward has shown, that is not a good risk for lending institutions to take (not that I am in ANY way defending lenders).
     
  10. therhodeo

    therhodeo Member

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    Not on all loans. There are types of loans that don't require PMI with less than 20% down.
     
  11. Barefoot

    Barefoot Senior Member

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    Not sure its the bank that's benefiting from PMI.

    Its a funding source (or middlemen) requirement.
    FNMA, FREDDIE, FHA..I believe they all impose this.

    The bank or credit union or mortgage originator can't fund a loan over a certain LTV ratio (80%) through the secondary market without adding PMI. It's a funding source/middleman imposed cost.

    A larger down payment or appreciation over time will allow the imposed requirement to be removed.

    Not sure it has much or anything to do with the "evil banks".

    ...but its certainly costly for the buyer. Not fun.
     
  12. aynirar27

    aynirar27 All You Need Is Rock and Roll Gold Supporting Member

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    20% is pretty common for a PMI. Other loans like government loans may not ask for them but those aren't really considered"PMI"
     
  13. jeff5371

    jeff5371 Supporting Member

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    I understand that the lenders need to protect themselves when the buyer doesn't have a large down payment. However, if you have an excellent credit score (say 750+) and really good income (say $150K+), PMI even without 20% down is ridiculous.
     
  14. Kitten Cannon

    Kitten Cannon Member

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    Depends on the loan. Navy Federal's got one that can go up to 100% down with no PMI, but it's reflected in the rates. The bottom line is, they'll always get you somewhere.

    This part is kind of how I feel too. I'm going through the process right now, looking at a house that's only about $15-$20k more than I make in one year. I don't want to put a ton of money down on it because moving is going to cost a lot and I can pay the loan off more quickly by doubling up on mortgage payments or whatever I decide to do than by putting a huge chunk down. I'd rather see how much I have left after moving there (it's 13 hours away) and then make a big principal adjustment in the first few months than put it down and discover I didn't leave enough to get all my stuff there or something (not to mention what if there's an emergency and I need money in the meantime, and I just sunk it all into a down payment? Technically I have reserves, but I would hate to use them for that). At any rate, last I checked my credit score was over 800 and all my ducks are in a row, but the bank is making me jump through an awful lot more hoops than I did last time I bought a place. It's fine, but sometimes I wish a human would look at it and go "oh... this one isn't going to give us issues."

    Then again, I'm sure if they did that, they'd end up getting burned enough times that they'd stop. So it goes.
     
  15. sleewell

    sleewell Member

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    then get a different loan.

    its not like PMI just pops up after the fact unannounced. if you don't want it then don't sign on the dotted line.
     
  16. Matt Jones

    Matt Jones Supporting Member

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    I'd like to think if you're making that kind of money you'd save up enough for 20% down pretty quickly.
     
  17. Kitten Cannon

    Kitten Cannon Member

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    That's not always the point though. I'd much rather have the cash in case I need it for an emergency than to sink it into the investment.

    Realize too that I'm 31 and single, so A) unless I'm making a ton, I haven't had the kind of time or an extra income to save up the kind of money I'd need for a down payment, especially if I had student loans, car payment, etc to deal with, and B) I've seen the market swallow up 20% equity practically overnight. I'd rather not sink that kind of cash into an investment all at once, because I don't trust the housing market the way people used to. I know older people have been around the block and seen a lot of ebbing and flowing over the years, but since I was of age to be a homeowner, I've pretty much only seen one thing and that was pretty ugly. I lost $50k in paper value on my place and that made it impossible to refinance, all because I had the poor fortune of being the guy who was looking to buy in 2007 instead of 2009.
     
  18. Matt Jones

    Matt Jones Supporting Member

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    Fair enough. But I guess the banks see the home equity as money they have control over vs. the money sitting in your bank account. If you want a $300,000 loan you'll need to play by the lender's rules.
     
  19. travisvwright

    travisvwright Member

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    OT Kitten did you sell your old place? (I've been following right along side you, bought in 2008 wouldn't miss payments in order to get help, so rented it out. I took almost all of last year trying to sell it for what I owed and was close but no cigar so I got another renter until November. Hopefully in a year I'll be back in the positive and be able to unload it without losing anything.) Curious how you are making out.
     
  20. Kitten Cannon

    Kitten Cannon Member

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    I get that, but if you look at an amortization schedule, it's pretty easy to see they're not going to have a hard time making their money and then some unless something goes catastrophically wrong for the buyer in the first year or two. I'm 8 years into owning my current place and I've probably paid close to half of the home's original selling price in interest thus far, and I'm left with approximately no equity whatsoever. Maybe 16% equity if you count the original sale price instead of the current market value. Sorry, but that's BULL. ****. I could have put my money under a mattress and I'd be a hell of a lot better off. The bank has NO business complaining they're not getting theirs, because they've made a metric f*ck-ton of money off of me (given that I'm a good borrower and pay my bill in full on time every month).

    I don't know. I lose a lot of sympathy for the banks when I look at mortgage statements like those first ones I got where 90% was interest and 10% was principal. If they're going to set it up that way, I personally would rather not then have them charging me extra for the PMI. It's absurd that I can't get a lot of equity in this place without having to hand over a huge lump, only to have them gaming the system behind the scenes so badly they crash the market and I lose my money. It's not like I can get insurance for that. As it is, I pay an extra payment or two a year, and I'm STILL hardly making a dent. If I could apply all that money I spent on PMI over 8 years to the principal, I'd be in a position where I could sell this place.

    The problem with this, as I see it, is that it's stupid business on the part of the banks. They make money on transactions, and if I'm stuck here, I can't move somewhere else. Which means they can't sell me another mortgage. They get so greedy that people lose their ability to pay back, and then they have all sorts of losses to deal with that they might not have had they not been squeezing everyone with all these extra fees and expenses. I wonder what it cost the banks to deal with all the foreclosures and short sales the last 7 years... was it worth it? I wonder how many good buyers shied away for hunkered down where they were so as to avoid the racket. And all of this because after they already made money at closing (fees, points, etc) and then more money in interest, and so on, they still insisted on packaging up the loans and selling them so they could make even more money off of the same transactions... and that led us to where we are today. It's a giant clusterf*ck that, from where I'm sitting, was primarily caused by greed and shortsightedness. Buyers aren't exempt from blame, but come on.

    Anyway. I'll stop ranting. Sore subject though. I'm looking at all this stuff under a microscope right now since I'm in the middle of it all over again, and I'm not feeling as liberated about buying a home as I'm supposed to. It just looks like a pit into which money is thrown/sucked/vanished. No matter what, with no upside whatsoever. Let's cross our fingers that's not the case though.
     

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