I'm currently in the process of refinancing my existing mortgage. To avoid a PMI premium my broker is offering two loans to stay under 80% borrowing vs. home value. The first loan is 6.1%, the second smaller loan is 8.1%. Is this a normal practice and is this a good practice. My home value is $250,000 and the loans are for 230,000. My credit score is average 750.

C. M.
Howard
Ohio

Answer:

There are many options to consider when refinancing your home. Some loan programs do require PMI when your financing exceeds 80% of the value of your home. Other options include paying the PMI in one lump sum up front or going through Alternative programs that simply offer a slightly higher rate to offset the mortgage insurance.

The practice of splitting your financing into two loans can have great benefits, because while you don't get to write off the PMI on your returns, (check with your CPA for exceptions), you do get to write off the interest on both loans. Also, you can put yourself into a great equity position by prepaying your smaller second mortgage in a shorter timeframe! Even if you only make 1 extra payment per year, you can reduce your overall term on this note by 4-6 years! Then, you only have 1 note plenty of equity!

Have you had the appraisal done already or are you basing this value off of tax records? When you refinance your home, traditionally a full blown appraisal is ordered. The value could come in higher than your tax value, and you may not need to worry about PMI after all!

I hope this helps out, and if you have any more questions, please do not hesitate to call me!

I look forward to earning your business!

Sincerely,

Julie Lanicek

www.primelendingonline.com
Email: jlanicek 'at' primelending 'dot' com

18111 Preston Road #505
Dallas, TX 75252
Office: 972.407.7920 Cell: 214.682.7374
Toll Free: 877.407.7920 Fax: 866.711.1749