Is it better to pay single premium mortgage insurance or monthly?

Erik Sandstrom

Mortgage Expert - Call 1-619-379-8999
Staff member
Loan Safe Mortgage
Jan 14, 2011
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181
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San Diego, California
www.loansreduced.com
Single Premium MI vs Borrower Paid Monthly! What is better?

One of the things I say over and over is you have to look at what your long term goal is and that will depend on what direction you take. I did a calculation the other day on a transaction that I personally was looking at pursuing and making the judgement call myself so I thought I would share my experiences.

In my case, the borrower paid monthly mortgage insurance was 172.03. When I saw this I thought to myself, ok that's not bad but it's also a little less than what an average car payment would be. I thought to myself, how long I was going to own the property and also how long it was going to be before I was going to engage in another transaction on this house. With the way the market is situated right now, rates are a bit higher than usual but is that going to change and go lower? That's something we all don't know and in my professional opinion, I don't think rates are going any lower in the next 5 years. There may start to be Adjustable rate mortgage products but those aren't long term. So what was the true answer for long term?

I then thought to myself what would the cost be to eliminate mortgage insurance entirely and pay an up front fee to do so. You may ask, why am I doing this? Well, in the long run we all want to make our mortgage payments as affordable as possible and we have seen that here at LoanSafe with the modifications and hundreds of refinances I have done for the community. The fee to eliminate the monthly payment is 8559.50 which brought a few questions in mind so the calculator came out. Here is what I did below to determine which direction was making more sense:

8559.50 - buyout from mortgage insurance
172.03 - monthly payment

8559.50 / 172.03 = 49.75 months recovery period or 4.14 years.

Then I asked myself a few things beyond this to check off that list of whether or not it makes sense.

Question 1: How long before I'm going to refinance or sell? If I'm going to refinance/sell in the next 4.14 years it doesn't make sense for me to buyout the mortgage insurance. Being that I am in this industry, this was a really hard question for me to answer and still is. On average, homeowners refinance every 3 years and with climbing interest rates, will they continue to rise was the question.

Question 2: How important is getting the payment $172 less per month. This was the most attractive part to me, I am a type of person who likes to keep my obligations low and I based it similar to a car payment and also if I had enough funds to buy it out without hindering my reserves.

There are many homeowners that are never even given an option for single premium and you want to look at all angles when going through the largest transaction in most of our lifetimes. I have still yet to make a decision on the option I personally feel would be best to take and members please chime in on what YOU would do. I'm very curious to hear what our other members would do in situations like this.