27 Apr Use Line of Credit and Get Rid of Mortgage Insurance!
After visiting numerous open houses and tours by real estate agents, you’ve found and fallen in love with that special house that you’re going to call home. There’s just one drawback, you can afford a down payment of just 5 percent. Since you haven’t saved 20 percent of the purchase price, you have to pay mortgage insurance.
Mortgage Insurance Creates a Higher Interest Loan
Recently, a friend of mine purchased their home for about $350,000. After closing costs, their mortgage was $329,607. Until their mortgage balance falls below $280,000, each month they will pay an additional .55 percent. This amounts to $160.41 each month.
If they make the scheduled loan payments, it will take ninety-two months or almost eight years of payments and they’ll pay $14,758. What happens if they were to use CashMap’s Line of Credit Strategy?
CashMap’s Line of Credit Shopping Guide
With only five percent equity in their home, they won’t qualify for a home equity line of credit. Instead, using our Line of Credit Reviews, they were able to get an unsecured line of credit at a low rate of 5.09 percent. Shopping around does make a difference!
Big Savings Using a Line of Credit
Instead of ninety-two months, it will take approximately twenty-one months for the principal balance to fall below $280,000. This is a savings of $11,390 in mortgage insurance premiums. By the end of the second year of using this strategy, they will also save approximately $78,400 in mortgage interest payments over the life of their loan.
How is this possible? Their mortgage balance will have dropped to just under $277,000. This is equivalent to the 97th loan payment. If they had stuck to their scheduled loan payments, at the end of two years, their principal balance would be $318,745. The interest payments skipped will total over $78,400.
Their savings total $90,000! These are dollars directed away from bank shareholders toward achieving your dreams.
What were their total line of credit interest payments? In two years, they’ll pay approximately $516 to save $90,000. That’s a phenomenal return on your investment. I doubt you’ll find few investments that will yield such a great return on your money!
A Word of Caution
Once your loan is 78 percent of the value of the original purchase price of your home, you can request your lender cancel your mortgage insurance; however, they don’t have honor your request. If your lender believes your home has dropped in value, they are not required to cancel your mortgage insurance. Ask if they’ll accept an appraisal. If they don’t, your fool proof back up plan is to refinance your home. Getting a lower rate without mortgage insurance will be a double bonus. ‘How to Get Rid of Mortgage Insurance’ by Polyanna da Costa of Bankrate.com is a great article that will provide you additional background information.
To create your own scenario, you need to have positive cash flow and a willingness to stick to your plan to achieve your dreams. To visualize your savings over the first twelve months, purchase ‘Create Your Own Line of Credit Scenario’. To see your results over fifteen years, purchase CashMap.