Written By:
...Jack Long, MGIC (www.GoSingleFile.com for complete details on who qualifies, lower MI premiums, online worksheets and disclosures) and Karen Deis on how to compare and sell LPMI versus Piggybacks.
There is a new twist to the private mortgage insurance game and as your clients’ trusted advisor—the ultimate goal is to save them money and increase their cash flow. The benefit to you is to show your own corner-of-the-mortgage universe that you are different than all the other lenders out there.
Originally, Piggyback Loans (the method of combining an 80% first mortgage with a 10%, 15% or even 20% second mortgage) were invented as a creative way to sidestep Jumbo Loans’ higher interest rates. However, it wasn’t long before lenders realized that the same two-loan structure could be used to eliminate MI.
In the short-term, with the 2-loan scenario, buyers might qualify for more home because the potential of a lower, combined monthly payments and higher tax deductions for mortgage interest.
In the long-term, (and that’s where you come in as their mortgage-lender-for-life) second mortgages have inherent risks: Balloon payments; variable interest rates, prepayment penalties and decreasing property values.
If you truly want to be your clients’ Lender-For-Life, then you must consider the new, MI alternative called Lender-Paid Mortgage Insurance (LPMI) - or SingleFile as named by MGIC.
What is Lender Paid Mortgage Insurance? It uses the same premise as offering your clients a “no-closing cost” mortgage or refinance scenario. The interest rate is increased to yield a higher SRP (Service Release Premium) to pay the MI (mortgage insurance) premium.
However, what has changed is that for those who qualify, the MI costs 60% less than the traditional MI insurance, plus, by increasing the rate to cover the premium amount, it can now be consider as a tax deduction by your clients.
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Barry Habib, in a recent interview on CNBC, stated, “almost 50% of all home purchases are done with less than 20% down payment. That means that mortgage insurance is required. Over the past few years, avoiding the cost of MI has been a hot topic. The way to do this is with a “piggyback” strategy—also known as a 80-10-10…this has been an interesting strategy in the past…but Prime, which is tied to the Fed Funds rate, has risen sharply from 4% to 5.5% within the last 7 months. We already know that we are in store for several more Fed hikes.
A new product from MGIC called “SingleFile” allows the borrower to pay a fraction of the standard monthly cost for MI, while locking in today’s low rate—a rate that is within 3/8% of the all-time lowest rates ever recorded. Additionally, the small monthly fee is tax deductible.
Recorded February 3, 2005.
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While not everyone will benefit from this program, here’s the scoop on what you need to know and how you can explain to those customers who qualify, which lenders offer the program and a real life case-history of how it can benefit your clients:
