QUESTION:
I want to take advantage of today’s lower interest rates, but regardless of whom I speak with no one will talk to me once I mention that I have lender paid mortgage insurance. I have a principal balance of $217,0000; the property is worth roughly $180,000, and I expect to keep owning the property for at least several years. Got any suggestions? Or is the lender paid mortgage insurance truly a deal-breaker?
ANSWER:
Lender paid mortgage insurance is not an issue. No lender will refinance your mortgage because you’re substantially underwater.
Because you purchased with less than 20 percent down, the lender required that you take out some form of mortgage insurance. It could have been private mortgage insurance or a loan backed by the FHA or VA. Instead, the lender self-insured the loan by providing financing with an above-market interest rate. The higher rate will hopefully be used to build a lender reserve or to re-insure the loan. Also, the higher rate is somewhat offset because it should be entirely deductible for tax purposes.
So, no, the issue is not how the loan was originated or insured. The problem is that you have a home valued at $180,000 which secures financing worth $217,000.
It’s possible that you might be able to get a loan modification with the government’s Making Home Affordable program if your mortgage debt is not more than 125 percent of the property’s current market value. However, is your home really worth $180,000? That may not be the case, especially after one considers marketing costs and other expenses. For details, speak with your lender and see http://www.makinghomeaffordable.gov/borrower-faqs.
The latest report from the National Association of Realtors says that home values rose in 78 out of 152 metropolitan statistical areas during the fourth quarter of 2010. If your property is in an area with price stability or even rising prices that may help you qualify for modification assistance.
