Buying your first home is an extremely emotional time for many people. Not only are you excited about finally owning your own home and the freedom that comes with it but you are also nervous about the monthly payments you are now responsible for.
If you are like most Americans you bought your home with little to no money down and facing the task of paying monthly mortgage insurance premiums, or PMI as they are often referred to. While PMI protects your lender from you defaulting on your loan it does little to benefit you, but you are the one paying for it! Sounds crazy right? Well the good news is that there are programs available to shift the burden of the PMI payments off of you and over to your lender. While this may seem like great news there are some drawbacks.
The first drawback is that the lender paid pmi interest rates are often much higher then a standard conforming loan rate normally is. The higher rate usually makes the payment the same but does offer you full tax deductibility for your mortgage interest payments.
Another drawback to using lender paid mortgage insurance is the higher interest rates and payments will never go away, this means that the higher payments will always be there for the life of the loan. This i unlike standard PMI which is removed by the lender once you have sufficient equity in your home, normally 20%.
However if you intend to stay in your home only a few years or know that you will be refinancing soon then a lender paid mortgage may fit into your financial plans. But if you are intending for your mortgage to be a long term loan then you may want to reconsider any lender paid PMI mortgages because the higher interest rates will cost you more then standard PMI in the long run.
Yes, I can remember the payment shock when I bought my first home. I told my wife we are used to paying $600 a month rent and now our new payment was over $1200.
It actually scared me, but we made the payment easily and really enjoyed the pride of ownership, not to mention how we amassed several thousand dollars in equity. It's worth it to own your own home and fire your landlord.