Why choose Private Mortgage Insurance?

The operative word is "insurance". Refer to my earlier blogs for more details - Greedy Banks and Frozen Equity Lines.

In the past, having less than 20% down gave you two options. PMIor a second/equity line of credit. The majority of the home buyers choose the equity line of credit for the flexibility and lower cash flow (interest only minimum payment) needs. Now we see that the equity line alternative has some hidden traps.

In my earlier blog, I commented that banks are freezing equity lines of credit by taking advantage of some fine print that allows them to re-evaluate home values and adjust the line based on this value. In many cases, equity lines were initially paid down by using savings that was being held for emergencies, or accumulated for college, under the belief that they can always write a check from the line when needed. When the banks started freezing their loan balances, the emergency/college fund was no longer available.

Now the decision to use an equity line of credit has to be evaluated purely based upon the pay-off expectations. No longer is it a safe place to keep funds for the future. Now, it seems that the fixed payment second mortgage or PMI are your safer choices. Unfortunately, banks are backing away from offering second mortgages and refusing to subordinate this second if you have the opportunity to refinance the 80% loan in the future - see my GREEDY BANK blog posting.

Bottom line, the PMI selection may be your best choice. Many of my clients now are deciding to take PMI rather than take the second mortgage or equity line with he expectation that down the road, appreciated home values and lower interest rates will allow them to refinance the package and drop PMI.

Well we can hope. Have a great day!