Lowering the cost of mortgage insurance - Brief Article

Kiplinger's Personal Finance Magazine, April, 1999 by C.S.

With low interest rates beckoning and household income rising faster than inflation, the rate of homeownership in the U.S. is shattering records. But Fannie Mae, the nation's largest mortgage investor, aims to put a set of house keys in the pockets of even more people.

For borrowers with good credit, Fannie Mae has lowered mortgage-insurance costs to levels not seen since 1994. As a result, borrowers can put down as little as 5% on a home and purchase only enough mortgage insurance to cover 25% of the loan (down from 30%). That's a savings of$110 a year on a $100,000 mortgage. If you make a larger down payment, accept a slightly higher interest rate or pay several hundred dollars more in closing costs, you can save even more money on mortgage insurance over the life of the loan.

Paying a slightly higher interest rate to lower the cost of insurance has an extra advantage. Although your monthly payment is usually the same, "you're paying more in interest, which is tax deductible, whereas mortgage insurance is not," says Michael Licamele, editor of Mortgage Almanac, an online publication.

But it's probably not worth refinancing to take advantage of the lower premiums, says Gene Eisman of Fannie Mae, because refinancing costs would be higher than premium savings. "You would refinance for the usual reasons and get this as an added benefit," says Eisman.

Fannie Mae's program is limited to home buyers whose mortgages are approved by the company's automated loan-underwriting system. You can find a participating lender by calling 800-732-6643. So far, at least one mortgage-insurance provider has lowered its charges, and others are likely to follow.