AVOIDING MORTGAGE INSURANCE

Is it possible to avoid or save money on mortgage insurance when buying a home?

Absolutely.

If you're a borrower who cannot afford the down payment of 20 percent of property value in order to avoid mortgage insurance, you can now get a combination fo a first mortgage for 80 percent and a second mortgage for 10 percent or 15 percent. That's right. An 80/15/5 combines the 80 percent first mortgage, the 15 percent second mortgage, and the 5 percent down payment. An 80/10/10 combines an 80 percent first mortgage, a 10 percent second mortgage, and a 10 percent down payment.

The 80/15/5 may save you money, because mortgage insurance raises the cost of the 15 percent portion of the loan by about 5 percent above the interest rate on the mortgage. This may make a second mortgage less costly, even though the rate is higher than on the first mortgage. And, interest on the second mortgage is tax deductible ( on loan amounts up to $100,000) while mortgage insurance is not. But whether or not you save money depends on your tax bracket, how long you expect to be in you house and the second mortgage interest rate. It's important to remember, though, that this may not work for everyone.

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