Italy’s financial Woes Drive Interest Rates in US Housing Market Down – How Long Will It Last?

Italy is the Eurozone’s third largest nation, but it has been suffering from an economic and political crisis for several years, which is a concern both for the European Union and the United States. In the US, economic problems in Italy can lead to declines in the stock market and can affect the housing industry and interest rates negatively, so it is important to keep an eye on what is going on in Italy’s economy.

In a nutshell, the biggest problem in the Italian economy for both that country and the US is that it is simply weak with anemic growth. It has had double digit unemployment since 2012 and has the largest debt in the EU at 2.3 trillion euros. That is more than 130% of the entire economic output of the country per year. This is the #3 highest level of debt in the world after Japan and Greece. The gross domestic product for Italy is at a lower level than 2005. Recently, Italy’s 10-year bond yield, which show the borrowing costs for the country, went above 3%. This is compared to 18% a few weeks earlier. This means there is a higher risk that Italian debt will not be paid, which spooks investors.

At the end of May 2018, stock markets reacted negatively to the financial and economic situation in Italy as they started to demand higher yields to take on government debt in Italy. The main stock index for Italy dropped 3% and the banks in the country were hit hard with some stocks losing 5% or more.

A major risk for the EU and the US markets is that Italian politicians will stop following the rules of the euro or could even try to abandon the currency outright. The euro dropped 1% against the dollar at the end of May, which reflected concerns of investors. It is worth remembering again that Italy has the #3 economy in the Eurozone and it has 15% of the GDP of the zone. This is much larger than Greece, which was the source of the previous economic crisis in the Eurozone.

In addition to economic and financial woes, political chaos and failure to get a stable government has caused more problems in the country. Even though there were weeks of discussions and negotiations in 2018, an agreement between a populist group of euro-skeptics and the pro-EU lawmakers that run the government did not materialize. This has left the country in a serious economic crisis and slump that can eventually drag the rest of the EU down with it.

Italy has not had a true functioning government since the March 2018 polls led to a hung assembly. The Fiver Star Movement, a populist organization, came out as the biggest party. They tried to join the far-right Lega Nord group to develop a coalition government. But this did not work out when the two groups agreed upon Giuseppe Conte to be their prime minister candidate.

While the Italian economic and finance crisis is worse than Greece in 2015, it is not the end of the world at this point. The EU went through a crisis in 2012 when several smaller EU nations were thought to be about to default on their debt and there were fears that the euro would collapse. Fortunately, the leader of the European Central Bank came up with a bond buying emergency program that eliminated the risk of a debt spiral and this increased investors’ confidence in the EU economy. It is a good thing that this did not happen because it would have had dire consequences in the US housing and mortgage markets.

The bottom line for the US housing and mortgage markets is like that for any other major develop nation’s economy: A major economic crisis in Italy could cause damage to the housing and mortgage interest rates in the US as investors begin to panic. It is hoped that this situation will not occur; hopefully, the country will soon form a proper coalition government and the furthering of the economic crisis in Italy will be averted.




interest only mortgage

Why Is It Difficult to Qualify for an Interest Only Mortgage?

If you are looking for a less expensive mortgage payment, one way is to strip it all the way down to just interest. That is what the interest only mortgage is. This type of mortgage requires you to only pay on the interest on the loan, which is simply the cost of the money you borrowed. You are not paying back the principal. These types of loans are harder to get and not as common as before the housing crash of a decade ago. Below is more information about no interest loans and how to get one.

Find Out Why So Many Borrowers Are Choosing the Interest Only Mortgage Option in 2018

Interest only home loans are usually set up as an adjustable rate mortgage and usually has a term up to 10 years. After this point, you are required to make amortized payments that include interest rate charges and principal. The other options are to pay off the loan in full or to refinance.

For instance, say you get an interest only mortgage for $500,000 with a 5% rate for five years. The interest only payment is $2083. After five years, the rate is adjustable on an annual basis, but it is still an interest only loan. Now let’s say the rate goes up to 6%. The interest only payment will be $2500.

If the rate continues to rise, and by the end of year 10 you must make interest and principal payments, you could eventually be paying 7% interest and have a payment of $3,876.

At the conclusion of the interest only term, the above example is 10 years, you may be able to refinance your loan balance into a new loan if a better interest rate is out there. But the problem with this is it is impossible to predict what rates will be with any certainty in several years. Even trying to guess what they will be in several months is difficult.

Qualifying for an Interest Only Mortgage

The reason that interest only loans are more unusual today is they are more difficult to qualify for. You typically need a higher down payment, a lower debt to income ratio and a good credit score. It would be rare that you could get an interest only loan with a FICO score under 700. You will certainly have to show the lender that you have solid financial assets and the ability to pay the loan.

Who Gets Interest Only Mortgages?

It depends, but many Interest Only Loans are for people who will probably not stay in the home for a long time. Most of these home owners are thinking of staying in the home for five or 10 years. The best borrowers for interest only loans have a lot of cash in the bank and a strong financial position. The fact that their loan is not reducing the principal is not a risk for them.

Some of the common types of interest only mortgage borrowers are those with:

  • A lot of monthly cash flow
  • A rising income
  • A lot of cash in the bank
  • Income that varies each month

Interest only mortgages can be a good choice for people who have the financial discipline to make a principal payment periodically. This can also work for the worker who is in a job that pays annual bonuses each year that can be used to pay down the loan principal every year.

Another type of person who might use an interest only loan is a couple getting close to retirement who could use an interest only loan to purchase a second home. They might sell their first home when they retire, move to their second home and then pay off the loan in full.

But keep in mind that interest only mortgages are not usually a good choice for the first time or conventional long-term buyer. Getting these loans is harder than it used to be because the loans are not purchased by Fannie and Freddie, so they are much harder to qualify for. Lenders must hold them on their own books or sell them to private investors.

An interest only loan can be a good fit for a higher income borrower with assets, but it is probably not appropriate for the first-time home buyer and is quite difficult to qualify for anyway.




2018 Tax Deduction Changes for Home Buyers and Homeowners – Is Buying a House Still Worth It?

The summer home buying season in 2018 is in full swing, with rising prices and interest rates encouraging many buyers to get the deal done before the cost of buying a home rises even further.

But the landscape for buying a home from a tax deduction standpoint has changed a good deal since last year. Congress has reduced some of the tax incentives to buy and keep a home of your own. But don’t worry: For many Americans, it is still better to buy a home than rent over the long haul.

You Should Know What Home Buyer Tax Deductions Are Available to You Before You Purchase a House.

The new tax laws passed by Congress have doubled the standard deduction to $24,000 for married couples, and has capped state and local tax deductions to $10,000. These changes will limit the tax deduction incentives to buy a home rather than renting. Zillow has estimated that homeowners who are taking tax deductions and listing mortgage interest as a deduction will drop from 44% to 14%. You also cannot write off the interest on many home equity loans and lines of credit today, unless you are using it for home improvements. Further, you only can deduct mortgage interest on debt on a home from $750,000 and below.

These changes in tax laws have reduced the tax advantages of buying a home, but evidence continues to suggest that buying generally beats renting.

Economists believe the tax law changes will reduce the number of purchase offers enough to drop home prices by approximately 4% in some of the more expensive cities, but the data does not show this yet.

Mortgage Interest Tax Deductions

Learn How to Maximize Mortgage Interest Tax Deductions

Tax law changes were laid out in December 2017, and we currently have resale pricing data available through February 2018. In the top 20 cities of the country, year over year price hikes were about the same or even higher than a year ago. This was especially the case in more expensive markets such as San Francisco, Los Angeles, San Diego and New York City.

The majority of home buyers have more disposable income to make their mortgage payments. In their weekly take home pay, a higher standard deduction provides them compensation for not taking property tax and interest deductions. And lower rates overall will actually increase the buying power of many taxpayers.

In hotter markets such as New York City, foreign buyers who often come in and pay cash to park wealth in the US, have played a major part in hiking prices. US personal income tax laws have little to do with this.

In June 2018, the Freddie Mac average for a fixed rate, 30-year mortgage is about 4.7%, which is up from the 4% range a year ago. For a $300k mortgage, this will add about $150 per month to your payments. But keep in mind that landlords are paying more to get loans for their apartment buildings and that affects rents.

How long you plan to stay in your home will also affect whether you want to buy or rent, regardless of the tax law changes. Closing costs, realtor fees and so forth raise the cost of owning a home, even if you can roll the costs into the mortgage.

For example, if you were to buy a home with a 30-year mortgage, 4.6% interest rate and a 20% down payment, if you occupied the home for at least four years, owning would still beat renting even if you cannot take the mortgage interest deduction anymore.

Families might decide to continue to rent and invest the down payment in stocks. From 2000 to 2017, equities measured by the Standard and Poor’s Index were up an average of 5.3% per year. But appreciation in homes in the top 20 markets in the last several years have shown approximately 6% increases each year.

There is also tougher zoning around major cities where the big employers are, and rising costs of materials and slower home building is making single family housing stock lower than in past times. As more young buyers are starting to get into the market, it is a good bet that continued home appreciation with continue to beat the stock market average. This is another argument for buying a home over renting, even without the previous tax incentives as enticing. Homeowners also have their fully equity working for them and not just the down payment.

While it is true you are not able to write off as many expenses as before as a home owner, there are still major advantages to buying over renting, especially in a growing economy with rising home prices and interest rates, and higher demand for homes. It is expected that home prices and rates will continue to rise, making home owners somewhat sitting in the cat bird’s seat, especially if they bought several years ago when rates and prices where much lower.




References: and


rates are up

Interest Rates, Suicide and Pharmaceuticals Are All Up. What do they have in common?

In 2018, the housing market has continued to show strong signs of recovery, more than 10 years after the crash that devastated millions of families across the country. But as the US economy has been getting stronger, it means that the days of cheap gas, interest rates for houses at 3.5% and double-digit investment returns are probably behind us.

While this is good news in some ways, higher interest rates, home prices, higher consumer loan rates and gas prices can actually lead to higher economic stress for some Americans, and even suicide in the worst cases. The sale of pharmaceuticals has also risen, and more people are taking anti-anxiety and anti-depression drugs in the US than ever before. This is an indicator potentially that economic stresses from higher rates and prices are starting to cause Americans to feel more stress than in the past few years.

In recent months, the Federal Reserve has raised its benchmark interest rates several times. This means higher interest rates for auto loans, credit cards and mortgages. The 30-year fixed rate mortgage rate has gone up to a four year high with the latest rate at the 4.6% level. This is still very low, but it does mean that borrowers cannot afford to borrow as much as they once did. After man years of low inflation, Americans around the country are paying more for just about everything.

In fact, mortgage interest rates for 30-year loans have risen for 15 of the first 21 weeks in 2018, which is the biggest share since Freddie Mac started to track the data in the early 1970s. The relatively healthy economy and the potential of higher inflation and higher prices is increasing the yield on the 10-year Treasury bond to more than 3%, which always has a negative effect on interest rates for mortgages eventually.

The ¾ of a point increase in mortgage interest rates so far in 2018 have boosted the cost of a $200,000 mortgage about $85 per month. The higher costs can definitely lead to more stress for home buyers and home owners, and it is possible that the higher costs are causing sales to decline. Existing home sales fell last month by 2.5% to an annual rate of 5.46 million and were 1.5% below the level of 2017 at the same time. From January through April 2018, home sales have dropped 1% from the same time a year ago.

Some economists have blamed low housing supplies more than the rates, but there is no doubt that the higher prices and rates are causing more people economic stress even though the economy is better overall. There was a four-month supply of existing, built homes on the market as of April 2018. This is the time that it would take to sell the supply of homes at the current pace. The standard, more balanced amount of homes is actually a six-month supply.

Economists add that higher interest rates are probably discouraging some people from selling their current homes and buying bigger ones. The thinking is that if you have an interest rate at under 4%, why would you want to sell your home and get a new interest rate that is approaching 5%? In these cases, these home owners may decide to stay in their current home and do renovations instead.

Some experts do insist that mortgage rates have definitely caused home sales in the US to slow as more buyers are feeling stress from the higher costs of borrowing money, as well as the higher prices. According to an index of mortgage applications, there are 3.5% more than a year ago, but it is down 6% on a seasonally adjusted scale since the peak in December 2017. Mortgage applications always reflect the demand from home buyers and current rates and are not obstacles that might prevent some home buyers from buying a home, such as a low level of home supply and hot competition from other buyers. One expert noted that for every ½ point increase in mortgage rates, mortgage applications drop by 8%.

While it is good that the economy is doing better in terms of unemployment and growth, the higher interest rates can lead to more stress on consumers with higher borrowing costs, which can lead to more pharmaceutical use, and incidents of suicide in the worst cases.




appraisal waiver

Can You Get Fannie Mae or Freddie Mac to Waive the Appraisal Requirement on Your Refinance Mortgage?

If you are buying a home or refinancing your existing mortgage, you know that the appraisal process can sometimes lead to complications.

Fannie Mae and Freddie Mac seem to be so confident in the housing market that they are willing to waive some of the appraisal requirements. Is this true? Let’s dive into it.

First of all, the process of ordering the appraisal can be time consuming. By the time the appraiser comes, does the appraisal and produces the report, several weeks may have passed. For people who need to get their refinance done quickly to get money for this or that, or to enjoy that lower rate, this can be a problem.

fannie freddie appraisalThe good news for some of you is that if you have a Fannie Mae or Freddie Mac mortgage, you may be able to have the appraisal requirement waived in some cases for a purchase or refinance.

Freddie Mac began their program in the summer of 2017, and Fannie Mae started to offer some appraisal free mortgages at the beginning of 2017. However, not every property will qualify.

Some of the typical requirements to get an appraisal free purchase or refinance mortgage include the property having an 80% or less loan to value ratio; being a single family or condo property; primary occupancy, and only when Fannie or Freddie have a previous appraisal in electronic format that has been analyzed by an underwriter.

It is not expected that more than 5% of loans will be able to qualify for the Fannie and Freddie programs, but it is possible that the programs could be expanded to more borrowers later.

As you might expect, mortgage lenders are generally happy about the moves to offer some purchase and refinance loans without an appraisal. They say that leveraging modern technology to get a property valuation without an appraisal will provide many customers with more certainty about the status of their mortgage application at the beginning of the process. There is nothing worse than expecting to be able to refinance and to make financial plans, and then have the appraisal come in low and scuttle the deal.

On the other side, most appraisers are not happy about mortgage that may require no appraisal. Appraisers always argue that they have a continuing role in the mortgage process. They say there is no way that technology can substitute what they are bringing to the table, which is eyes, ears and noses and the expert ability to analyze a home, its neighborhood and market conditions and arrive at a precise value for the property. Computer programs have a lot of data, they say, but they do not know what improvements and damages have been done to a house that affect value.

According to one appraiser in Virginia, it is not unusual to walk into a five-year old home that is in such rough shape you would think it had not been maintained for 25 years. Another appraiser in Oklahoma says that the path that Fannie and Freddie are on is risky. The databases that the mortgage giants are relying on may have a lot of information about previous appraisals, but if new appraisals are not being done regularly, that property data will lose its accuracy over time.

Remember, if you want to try to qualify to have your appraisal requirement waived, you need to have a Fannie Mae or Freddie Mac mortgage with a loan to value ratio of no more than 80% if the purpose is to lower the rate. You also will need to have a 70% loan to value to get cash with a refinance.

The bottom line on this subject is that the ability to refinance or buy a home without an appraisal will probably only affect a small number of people. But you should be sure to talk to your mortgage lender to see if you can qualify. If so, you can save yourself a lot of time and at least $400.





deep staate

How the Deep State and Its Criminal Behavior Affects Consumer Confidence and the Overall US Economy

For the most part during the Trump era, consumer confidence has been very high. The May 2018 Consumer Confidence Index read 128 and was 135.6 in April. The assessments by consumers of current economic conditions has been improving a lot this year as there are better attitudes about business conditions. This is after a report of 127 from March and 130 in February, which was the highest Consumer Confidence Index seen in 18 years.

Experts say that the consumer assessment of current economic conditions has increased to a record high, which tells us that economic growth levels in Q2 is very likely have improved from Q1. Consumers also have been slightly more positive about the shorter-term outlook in May even though there is a small decline in the percentage of those surveyed who anticipate business conditions to improve over six months. Overall, consumer confidence levels are quite high and they should continue to support solid spending by the consumer in the near term.

On the housing side, things are also looking bright from the consumers’ perspective. The Fannie Mae Home Purchase Sentiment Index increased .6 points in May to 92.3, which is an all time high in the survey for the second month in a row. But consumer attitudes about buying or selling a home are diverging somewhat. The number of respondents who say it is a good time to sell a home did increase to 46%, it is up 14% from the previous year. But the net share who said now is a good time to buy dropped to 28% and this showed little improvement from the previous year. The total share of consumers who said home prices will rise in the next year was unchanged at 49%. Americans also have reported more job confidence this past May with a boost in household income over the last year.

But the National Housing Survey results also indicated that the consumer share who expect their financial situation personally to improve in the next year dropped six points to 48%.

Some experts wonder how the Deep State that Trump talks about so much might affect consumer confidence and the economy. It is speculative at this point. However, it is real that a deep state of sorts is in the US and it does include national security and economic bureaucrats who can use secretly collected information to affect the actions of our elected officials. The deep state can in some ways be a threat to democracy and a savior of it, depending upon the situation.

The Deep State has gotten the blame for a lot of things since Trump took office. But if you look just on the intelligence bureaucracies that include the FBI, NSA and NSC, there is evidence that the deep state secretly gathered information illegally to sabotage the president and some of his senior officials. This might be part of a concerted effort of by people more or less acting on their own.

Since Trump took office, sensitive intelligence leaks came out that were made to discredit him and his top leadership. They have continued to poor from both current and former officials in the government.

Even the harshest critics of the Trump administration should be concerned about some of the leaking that has been going on about matters that are usually only known at the highest level of government. The national security bureaucracy is set up to defend the national interests and people of America. If it is weakened, the security of the American people is at stake. And if enough people become concerned about the security and viability of our government and country, this can cause a drop-in consumer confidence and economic activity.

It is very important to the economic health of the country for people to have faith in our major political institutions, so hopefully, some of these Deep State leaks that have been occurring in the first half of the Trump presidency will end soon.

Everyone wants the American economy to continue to do well, add jobs and have more people buy homes, after all.



References: And



FHA Wants You to Make you Pay Mortgage Insurance for Life.  What Can You Do about It?

FHA mortgages, backed by the Federal Housing Administration, are an excellent loan product for many Americans who have lower incomes and/or credit scores. But the FHA mortgage comes with one major downside: mortgage insurance.

FHA mortgage insurance or MIP is a special type of insurance policy that protects your lender if you default on your mortgage. This insurance allows the lender to issue credit to people with lower credit scores, higher debt to income ratios and lower incomes. FHA MIP reduces the risk for the lender, and you enjoy the benefits, which is namely having a mortgage with a low interest rate and down payment.

FHA MIP is paid for up front and each month. You need to pay an upfront premium of 1.75% of the loan amount, which is normally wrapped into the loan. In addition, you pay an annual premium that is part of your monthly mortgage payments. Depending upon the size and term of the loan, the expense is .45% to 1.05% of the amount of the loan.

The major downside with MIP is for most current loan holders with loans issued after June 2013, you must pay the insurance for the life of the loan. The only exception here is if you put down 10% or more on the loan. In this case, you can cancel the insurance after 11 years.

If you have an FHA loan and you want to get out of mortgage insurance, you really have only one major option, assuming you put down less than 10%: You need to refinance when you can out of the FHA loan into a conventional loan. When you have at least 20% equity in the home, that is when you should think about getting out of the FHA mortgage and going to a conventional loan.

Once you have 20% equity, you can usually get out of paying mortgage insurance on a conventional mortgage. You will need to show a solid payment history when you want to refinance, however. Many people are enjoying impressive gains in home values in 2018, with the average home value increase more than 6% across the US, and much higher in many markets. In San Antonio TX, for example, homes have increased 10% in value in the past year alone. This could provide a way for some people to refinance into a conventional loan with at least 20% equity.

But what if you got an FHA mortgage when rates were lower and now want to refinance when rates are higher? These days, rates are around 4.5% and even higher in some cases. In this situation, you may need to delay a refinance until rates have lowered.

If you think you cannot refinance right now, you may have another hope though. The commissioner for FHA has wide latitude to alter the premium structure on FHA loans and has done so several times in the past decade. It could be that the policy will change in the future so that you can cancel MIP sooner.

More About FHA Loans

Many Americans rely on FHA loans to buy their home because the terms for getting these loans are so good. FHA loans can be obtained with just a 580-fico score and a 3.5% down payment for many borrowers. This is one of the lowest down payment and most flexible mortgage programs in the country. Millions of Americans have been able to get a home loan much sooner by taking advantage of the FHA program.

Of course, the MIP requirement is a major annoyance for many borrowers. It seems hard to believe that you should have to pay $100 or $200 per month for mortgage insurance, especially for the entire life of the loan! But home owners should remember that getting an FHA loan probably allowed you to stop renting much sooner than if you had waited to qualify for a conventional loan.

The bottom line with FHA loans and MIP is that mortgage insurance is expensive, but it provides a way for people with lower credit scores and mediocre income to get a home loan much faster than they otherwise would. After you get an FHA loan and are approaching 20% equity, try to get your credit higher so you can refinance into a conventional loan. This is the best way to go for people who want to reduce their loan costs going forward.

appraiser tips

What to Make Sure Your Appraiser Knows When They Come to Inspect Your House

So, you want to sell your home or refinance? Then you probably need to have an appraisal. You know how great your home is, but your appraiser needs to know it too, so you get the best possible value. A licensed professional appraisal is generally necessary if you want to refinance so the lender knows the house is worth what they think. It also is a good idea to spring for an appraisal when you sell your home, so you really know how much to sell it for.

There is no need to stress out when you are going to have your home appraised. But if you prepare for your appraisal beforehand, you will probably get a better price. Here are some tips to keep in mind when you are going to have your house appraised:

Tell Appraiser About Improvements

When your appraiser first comes to your home, you should sit down with him for a few minutes and tell him about any improvements you have made on the property. It can be helpful to give him a written list. Mention any rooms that have been renovated, windows replaced, AC system upgraded, new roof or bathroom, etc. All of these items are very important for increasing the value of your home.

Many home experts say the best renovations in terms of adding value are new windows, and an upgraded kitchen and bathroom. Keep this in mind if you are thinking about doing upgrades before your appraisal.

Update Easy to Replace Materials

There are many easy to upgrade things in the home that you can do yourself or with minimal help that can increase the value. Upgrade old countertops, paint walls and cupboards and replace carpet or flooring. Upgrading flooring can be surprisingly inexpensive. Also consider replacing the front door; this is an easy upgrade that is easy to do and adds value.

Of course, tell your appraiser about any of these simple upgrades you made.

Keep the $500 Rule in Mind

Things in the home that need to be updated or corrected, such as broken tile or doors, old wallpaper or an outdate bathtub, usually will take $500 off the value of the home for each item. Generally, you can assume that every negative the appraiser sees will take off $500. If he sees a lot of these items, you can lose thousands in home value. You should try to fix any problems immediately that would cost you less than $500 to repair.

Look at Your Yard

First impressions do really matter, especially on the front of the home. Keep the grass mowed, remove any dead tree limbs and shrubs, and remove all clutter from the front and back yard. Also, weed flowerbeds and add mulch where you need it. Houses that have higher curb appeal always get a higher appraisal.

Tell your appraiser about any upgrades you made to the lawn and landscaping, such as trees and flowers and shrubs.

Research Other Homes Around You

Take a look at homes that sold recently in your area. What were some of the problems that may have been encountered during their appraisal? Many of these things are in the public record, but you can also talk to your neighbors. They could help you to figure out some home improvements that you should consider getting a better appraisal. Remember that many homes in the same neighborhood were built at the same time by the same builder, so they could have common features and problems.


Completely clean the home from top to bottom before the appraiser arrives. Wash down walls and doors, shampoo carpets, clear clutter, power-wash the driveway and deck, and the exterior of the house if you can. A clean home will always look newer and more attractive to potential buyers and the appraiser.

Spruce Up

Nothing is better than a new coat of paint on a tired, old looking room, and it does not cost much. Install new doorknobs and faucets – these are also inexpensive upgrades that can make a big difference. Outdated décor can really have a negative effect on your appraisal and upgrading them will not cost you much at all.

Check Safety Equipment

All smoke and carbon monoxide alarms should be fully functioning.

The bottom line on an appraisal is there are many things you can do to increase the value of your home without spending a bundle. But any major upgrades you have made should be pointed out immediately to your home appraiser. Communicate everything that you have updated on the home as soon as the appraiser arrives, so he keeps that in mind throughout the entire appraisal process.

Should You Refinance Your Mortgage without PMI?

For many home buyers PMI (private mortgage insurance) is one of those necessary evils of life. If you lack 20% down for a down payment, you usually need to pay PMI. But for many home owners, you are not usually stuck with paying for mortgage insurance forever. If you have equity in your home and have a conventional mortgage, you could be able to refinance and stop paying for PMI. But is it smart to do so?

Below is an overview of whether or not you should refinance your mortgage to lose PMI.

PMI Overview

Private mortgage insurance is a monthly premium paid in addition to your monthly mortgage payment. It is necessary to pay this extra cost in most cases when you put less than 20% down on a home. The private mortgage insurance will pay back the lender if you were to stop making mortgage payments.

PMI costs depend upon the size of the loan, your credit score, payment history, type of loan, and other factors. For a $200,000 loan, people commonly pay between $150 and $200 per month for PMI. It is a considerable extra expense, which is why many people want to refinance to lose this extra payment.

Before You Get a Home Refinance for No PMI

But before you think about refinancing, you should figure out if you are even eligible for having PMI cancelled. In some situations, you could have it cancelled without refinancing at all.

On a conventional loan, federal law requires that PMI drop off automatically once the home owner has reached 78% LTV based upon the value of the home at the time the property was insured. If you are getting close to 22% equity, it might be logical to wait until the lender cancels your payments on their own.

These days, many home owners find that with home prices increasing, they are eligible for PMI cancellation sooner than they realized. In 2017, home appreciation was more than 6% on average in the US. Homeowners in some cities are finding that their home values may have soared 10% or even more.

If the value of the property has appreciated considerably since you got your mortgage, the lender may be willing to allow for this and cancel your PMI. Many mortgage lenders on conventional loans will let borrowers cancel PMI when the value is 80% through amortization and appreciation.

Home owners who are confident that their home value has risen or are near reaching 20% equity through their payments, it is necessary to get a new appraisal, which will run $300 to $500. If you do not want to spend that money, consider an automated valuation model online. While it is no substitute for an appraisal, it will give you a reasonable idea what the home can appraise for.

FHA Loan Prior to MI Changes

But for people who have an FHA loan, note that for the most part, these loans require you to continue paying for mortgage insurance even after you have reached 22% equity, unless you put down 10% or more when you bought the home. In the past in this situation, you could cancel your mortgage insurance on an FHA loan after 11 years, but FHA changed their rules recently. If you closed your FHA loan prior to these changes then you are grand-fathered in for the MI elimination.

That is a big reason why you may want to think about refinancing, with an FHA loan, if you have good credit and you are confident you have at least 20% equity. There is little reason to continue to pay for mortgage insurance with an FHA loan for years and years when you have more than 20% equity.

One consideration however would be if you have a very low interest rate below 4%. As of mid-year 2018, interest rates have reached record highs for the past six to seven years. While still historically low at 4.6% or so, people who have rates under 4% from a year or two ago would need to think long and hard if it is financially worth it to refinance a loan with such a bargain basement rate.

While the only way to get out of FHA mortgage insurance these days for most people putting down less than 10% is to refinance, it may not be a financially wise move.

Should You Refinance?

If you cannot get automatic PMI cancellation through making payments or through appreciation, you need to weigh if the cost of refinancing is worth more than what you will save with not paying for mortgage insurance. A good way to get a rough idea of these numbers is to simply divide what the loan costs by what the monthly reduction will be in your payment.

For those who do decide to refinance to get rid of the mortgage insurance, you should ensure you are getting a new loan with low fees, and not just one with the lowest interest rate.



References: Understanding No PMI Mortgage Options

fha pmi

FHA Homeowners Need to Do This, to Get Rid of PMI

FHA mortgage insurance, known as MIP, is an insurance policy that protects the lender if the loan holder defaults on the mortgage. The MIP policy allows the lender to issue FHA backed loans that require a smaller down payment. FHA MIP lowers the risk for the lender, and the benefits are given to the borrower.

The home-buyer pays for MIP both up front and every month. Borrowers with loans that were issued after June 1, 2013 must pay mortgage insurance for the entire life of the loan, with a few exceptions. If you put down 10% or more on the loan, you can cancel the MIP after 11 years. If your loan was closed before June 1, 2013, you can cancel the MIP once you have 20% equity in the home.

Are You Looking to Get Rid of Paying Mortgage Insurance on Your FHA Loan?

Another option to get out of paying mortgage insurance if you have a loan issued after June 1, 2013 is to simply refinance the loan into a conventional mortgage when you have reached 20% or more equity in the home. Note that getting approved for a conventional loan requires a higher credit score than with an FHA loan. So, make sure your credit is in good shape if you want to refinance into a conventional loan. There is no prepayment penalty on an FHA loan program, so you can refinance at any time.

Refinancing into a conventional loan could occur sooner than you think; property values have gone up markedly in the past three years. You may want to check property values in your area and even pay for an appraisal to see how much your home could sell for. There are some parts of the country that are seeing yearly property value increases of 10% or more. According to the National Association of Realtors, the median home listed for sale in Q2 of 2017 was $255,000. This was more than 6% above a year earlier. This is happening across the country.

But one issue you could run into is the interest rates for a refinance into a conventional loan could be higher than what you are paying now. Rates in 2018 are on the rise, with conventional rates in the 4.5% and 4.6% range. This is nearly a point higher than a year ago. If your rate is at 4% or lower, you might need to wait to refinance to get rid of your mortgage insurance payment.

Cancelling Mortgage Insurance with a Conventional Mortgage

You have more options to get rid of PMI with a conventional mortgage. PMI is the name of mortgage insurance for conventional loans. Once you reach 20% equity in the home with a conventional mortgage, your PMI should be dropped off the loan. You should write a letter to your lender to request the insurance policy be cancelled. Not every lender will automatically cancel the mortgage insurance, you may need to contact them in writing. But federal law states the conventional lender must drop your PMI once you have 22% equity. Still, it is the smart home owner who keeps on top of this matter; it is not unusual for a lender to continue to accept PMI payments beyond the point which you are required to pay them.

But keep in mind that most lenders will base the 22% equity/78% LTV on the last appraised value. If your property has shot up in value, you should contact your loan servicer to determine what the requirements are to get an early cancellation. The loan servicer usually will require a new appraisal. This will cost you approximately $400, so you should check home values in your area to see if your home will really appraise enough to cancel PMI early. You can check with your realtor who should be happy to run comps for you for your neighborhood. This is one of the main reasons that LPMI loans are in high demand in 2018.

The bottom line is that mortgage insurance is often a necessary evil for many home buyers. If you do not have the cash to make a 20% down payment, you will need to get mortgage insurance, unless you get a VA loan.

Many home buyers with previous credit problems may need to get FHA financing because these loans are easier to get with lower credit scores. Even though you could get locked into paying MIP longer than you like, sometimes for the life of the loan, this may be the best option for people with lower credit scores. But once you have 20% equity and you have good enough credit to refinance, you should get into a conventional mortgage if the rates are low enough to make the move make sense.