Know More About Mortgages

Other than “termite infestation” what is the other thing that brings fear to the heart of the homeowners? The prepayment penalty is the two words that most homeowners are trying to avoid. A prepayment penalty is a penalty enforced upon a borrower who pays off the loan before or much earlier than was originally agreed. Borrowers are avoiding this thing to happen as prepayment penalties can be as high as the total of your six-month interest on your entire mortgage. Not all lenders impose a prepayment penalty, but it is better for you as home buyer to keep away from loan offers that include prepayment penalties. You can negotiate with your lender, if not possible and perhaps you can prepay a certain amount every year without penalty or prepay just 20-30 percent of the total loan amount without penalty.

Aside from prepayment, many people as well do not understand Private Mortgage Insurance (PMI). This is mandatory required to all borrowers that loans are above 80 percent of the property value. It is also required if the buyer can’t pay the upfront cost of at least the 20 percent of total property amount or refinance with more than 80% loan-to-value. As proof of financial stability lenders wants a 20 percent down payment and those who can’t produce that kind of upfront amount money, lenders want PMI policy to cover up if the borrowers’ default on the mortgage. The truth is you buy an insurance to protect lenders own interest and keep them away from risk.

Most of the borrowers are trying to avoid PMI for reasons that they will likely look less desirable to the eye of the lenders and will increase their monthly expenses with the PMI premium. Some home buyers are doing a wise move by choosing to pay less than the upfront cost and pay for PMI. They will use the money that supposedly a down payment to remodel the house soon after having it. Home remodeling will definitely increase the value of home that typically brings you more cash in the house. If equity increased PMI will go away as 20 percent upfront cost level reached.

By Suzana