[an error occurred while processing this directive]
On Real Estate
| News
| Sports | Business
| Opinions | Columns
| Entertainment |
| Science/Technology| Weather
| Archives | E-mail
Us |
Tuesday, August 15, 2000
Mortgage insurance not always necessary
Fee can be dropped if equity is adequate and payments are current
Some homeowners are paying hundreds of dollars a year on insurance that they no longer need.
Of the million people each year who sign mortgage papers, many are eligible to erase one of the fees if they can prove they are no longer a financing risk.
Private mortgage insurance makes it more flexible for homebuyers to get into a house, making it possible to put less than 20 percent down. As a result, more people have been able to qualify to get into a house, explains Rick Adams, manager at Independent Mortgage on South Padre Island Drive.
But at the same time, the homebuyer is paying for the privilege of protecting the lender - not the buyer - in case the homebuyer defaults. A typical homebuyer pays $250 to $1,200 a year in mortgage insurance, depending on the amount of the loan and the down payment. Homeowners who put 10 percent down on an average $100,000 house would be paying about $40 a month, every month for as long as the mortgage lasts.
A law passed last year exempts homeowners from paying for the insurance even if their down payment is less than 20 percent.
The problem is, a lot of people now paying the insurance still don't know that if they have enough equity in the house, they don't have to pay for the insurance. The lender is required to notify homeowners of this law, but the insurance isn't automatically cancelled. It does take some effort on the part of the homeowner.
The first step in deleting private mortgage insurance costs is to establish that there is enough equity in the house and that payments have been current. This will call for a home appraiser to evaluate the house.
Many people will find that their equity will come from the house's increase from appreciation, said Adams. A home inspection, which costs between $250 and $350, can establish that.
If the mortgage on the primary residence is signed after July 28, 1999, and the equity hits 22 percent, the insurance is cancelled automatically.
But for most people, it's up to them to do the work to cancel the insurance when the equity reaches 20 percent.
There are other factors to consider, including loan-to-value status, pay habits and whether the property is used for rental. Factors that work against the likelihood of qualifying for exemption are whether the loan is considered high risk, if payments aren't made on time or if there are liens on the property.
Homeowners who think they qualify should contact their lender, said Jan Schamp, loan administration manager in Wells Fargo's Minneapolis office. Each lender has specific rules of what is required, she said, and it's best to find out what the next steps are. This is especially true when choosing whether to hire a home appraiser.
About 15 percent of the several hundred callers to Wells Fargo each month have enough equity that they can quickly have their mortgage insurance erased. Most have not built up enough equity, she said.
But that's fine. It's good for homeowners to check the status of their home financing after they have been in the house one, two or five years, she said.
Schamp explains that lenders don't miss the mortgage insurance and want to help people erase the insurance.
"It's fine with us, because the risk isn't there," she said.
Business writer Andrea Jares can be reached at 886-3678 or by email at_jaresa@caller.com. On Real Estate is published every other Tuesday in the business_section.
| Stock
look up | Business Calendar
| Talk about this story
| Home |
[an error occurred while processing this directive]
© 2000, a
Scripps Howard newspaper. All rights reserved.
|
 |
 |
[an error occurred while processing this directive]
[an error occurred while processing this directive]
[an error occurred while processing this directive]
|
