Private Mortgage Insurance (PMI) alternatives

It is now possible to get a low down payment GMAC mortgage without paying for private mortgage insurance (PMI).

You are probably aware that many lenders require that borrowers with low-end down payments purchase PMI. Borrowers who hold less than twenty percent equity in their home are considered high risk. To help offset that risk, lenders require private mortgage insurance so that they won’t lose money if you stop making monthly payments.

While PMI can be helpful to borrowers who can’t afford a large down payment, it is certainly a burden. Monthly premiums must be paid in addition to the regular mortgage payment, and there might be added closing costs, too. In recent years, PMI alternatives have become available.

One alternative is called lender paid mortgage insurance (LPMI). Its function is similar to that of PMI, but the lender (rather than you, the borrower) pays the premium. In return for assuming this responsibility, the lender charges you a higher interest rate for the life of the loan.

LPMI can be great for borrowers since money paid toward interest is tax deductible. The downside is that the interest rate will never go down, even after home equity exceeds twenty percent. (PMI, on the other hand, can be cancelled.) In effect, the only way to quit paying for LPMI is to refinance your GMAC mortgage. For that reason, LPMI can be particularly appealing for borrowers who plan to move after a relatively short amount of time.

You may qualify for other GMAC mortgage plans that are available without PMI. Contact your local representative for more information.