Once again, we are following up on our Oregon mortgage refinance example.  Remember, our borrower (you) owes $341,000 and is looking for a fixed rate since his adjustable interest rate has gone to 7.5%.  The home has appraised for $427,000 and estimated closing costs run $7,000.  At first glance, is seems like a new mortgage for $348,000 will be the right refinance amount. 

            But it is not.  The reason for this is that a new Oregon home mortgage for $348,000 will be 81.5% of the appraised value.  Lenders making conventional mortgages for greater than 80% loan to value (LTV) require that the borrower purchase mortgage insurance.  Mortgage insurance is, unfortunately, not like life insurance.  The only benefit it has to a borrower is that it makes loans for more than 80% LTV possible.  Mortgage insurance is for the benefit of the lender.  This insurance covers the lender in case the borrower defaults on the mortgage.   The borrower pays the premium by either purchasing a policy from a private mortgage insurance company or through lender paid mortgage insurance.  If the lender offers LPMI, they will increase the interest rate on the loan and use the additional interest to fund the insurance.  Private mortgage insurance (PMI) is based on the loan amount, the loan to value, the term of the mortgage, the type of the mortgage and the borrowers credit score.  In our case, assuming the borrower has a credit score of 675, the mortgage insurance premium is .0027% of the mortgage amount, or $78.30 per month.  This adds us to $939.60 per year and is obviously a cost you want to avoid if possible. 

            So the question is now, can we avoid mortgage insurance for our Oregon mortgage refinance example?  The answer is yes.  The easiest solution is just to borrow less.  80% of our appraised value is $341,600.  By borrowing $6,400 less, there is no mortgage insurance requirement.  But what if you don’t have $6,400 now?  How can you pay the closing costs?  Will you need to wait on your Oregon mortgage refinance until you have the extra money? 

            Not if you come see me at www.OregonsBestMortgage.com.  I have several solutions to this situation.  I will explain each one to you, the benefits or detriments of each one, and prepare cost estimates for you to help you choose the best.  I will go over some of these options next blog.