In order to create more stability and security for lenders who offer up purchase capital in good faith, homebuyers are often required to purchase mortgage insurance.

While the concept of mortgage insurance has been around in the United States since 1880, the systems and laws that govern the practice have gone through several evolutions, and only achieved their current standards in 1961. With today’s housing market still not fully stabilized from recent fluctuations, mortgage insurance is an essential tool for recovery.

Mortgage insurance works on many of the same principles as other insurance policies, by collecting premiums that will be used to pay out the beneficiary—in this case, the lender—in case the borrower defaults. Generally, mortgage brokers require that such insurance be purchased when the loan exceeds 80% of the property purchase price (meaning that the homebuyer has put down less than 20% for a down payment). The mortgage broker and mortgage insurer agree on coverage—the amount of loss that the insurer will pay for if the borrower defaults and the property must be sold at a loss. For example, a mortgage insurance policy may cover the first 25% of losses, and the lender will remain responsible for the remainder. Typically, the mortgage insurance is borrower-paid (BPMI), although in some instances it may be lender-paid (LPMI) with the cost of the premium being built into the interest rates charged on the loan. A BPMI policy can, by law, be canceled once the borrower has paid off an agreed-upon amount of the loan, or when a certain date in the mortgage schedule has been reached.

Typically, mortgage insurance comes either from private mortgage insurers or through the Federal Housing Authority. Private mortgage insurers operate with individual sets of guidelines, and their interest rates can vary from anywhere between 1-6%, depending on factors such as the amount of coverage and the homebuyer’s credit score. FHA, or “public” mortgage insurance is fixed at 1.75%, and tends to be an LPMI, with the costs of the premium collected from the borrower in other ways.

By providing lenders with extra security, more homebuyers can be given the opportunity to participate in the market, which leads to a strengthened industry.

1. Remember: If you’re vacationing this summer, make sure to set your bills to auto-pay so that you don’t get hit with any lates!

2. Reshape: Doing some shopping? Try to spread purchases across various cards to show you’ve maintained good credit health across several lines.

3. Resist: Don’t apply for a store credit card unless it’s really *worth it*.

4. Recap: Make a list of all the credit cards you’ve opened. Should anything ever go missing or mysteriously show-up on your card, it’s helpful to have a go-to place for all your info. If you keep the file on your computer, make sure it’s locked and password protected.

5. Re-evaluate: If some of your cards carry balances, call the creditor to find lower interest rate options. If unsuccessful, consider transferring your balance to a different card with a better repayment plan.

Award-winning Aqua’s undulating exterior has quickly become a shining star in Chicago’s architecture. Floor-to-ceiling windows encompassing condominiums, rental units and a full hotel expose sweeping views of Chicago with incomparable views of Lake Michigan, Millennium Park, Navy Pier and more. You’ve probably seen this icon in the news or even on a stroll in Grant Park. Here’s a peek inside this masterpiece!

Photo by VHT Photography

Photo by VHT Photography

Photo by VHT Photography

It’s hard not to hear about low rates in the news. You may be wondering if you should jump on the bandwagon and take advantage of today’s market fluctuations. Here are a few questions to consider (and ones we’ll ask you) to help determine if a refinance is the best plan of action:

When did you buy your home? What was the purchase price? These questions will help you assess the value and appreciation.

How much did you initially borrow, and what’s your current loan balance? This will determine the new loan-to-value ratio, and assess whether or not private mortgage insurance will be required.

Do you have an ARM due to expire, or a special purchase that requires cash-out? This will determine the timing of your transaction.

Do you have a second mortgage? Having another lien against your property affects the first mortgage. It must be combined with the first mortgage, paid off, or subordinated.

How’s your credit? Your credit health will determine rates available to you.

How long do you plan to stay in your home? This will help determine whether the cost of a refinance will be offset by the time spent in your home.

We all hear that “interest rates fluctuate on a daily basis.”  Ever wonder how rates fluctuate over a period of years?  Here’s a quick run-down of historical rate changes over the past five years for two major mortgage products: the 5/1 ARM (adjustable rate mortgage) and the 30-year fixed:

30-YEAR FIXED
The most popular of all mortgage products is still at historic lows – and here’s proof.  In April 2005, the 30-year fixed hovered around 5.5%, spiking to nearly 6.5% a year later.  The 30-year saw ups and downs through March 2009, hovering right below 5%.  Today, the 30-year is still right on top of the 5% marker – and keeps fluctuating on a daily basis.  For payment stability, a long-term length of stay and a monthly principal that will never change, the 30-year fixed may be perfect for your situation.

5/1 ARM
Having an adjustable rate is advantageous to those looking for shorter stays in their new home – and ARM’s often deliver lower rates than fixed products.  Especially now.  In April 2005, 5/1 ARM’s were around 4.85% — and though they fluctuated with trending ups and downs similar to fixed rate products, the 5/1 ARM is now at it’s lowest point in the past five years.

For the most current rates and trends, call me today!

Source: BankRate.com