Real Estate 101
Mortgage FAQ

Here we present answers to some of the frequently asked questions we receive concerning home mortgages.  Please feel free to email us and ask any mortgage or real estate question you have, and we will do out best to answer it for you.

Can I pay more on my mortgage to increase equity?

Yes, by making extra principal payments to decrease the amount of your mortgage, this not only increases your equity, it also decreases the ultimate amount of interest you will pay.  Some types of mortgages build equity faster than others.  For example, a loan which is paid off over 15 years will allow you to build equity faster than will one that is paid off in 30 years.  However, the monthly payments are higher on a 15-year loan.  This makes qualifying for a loan slightly more difficult.

What are the benefits of a no-point mortgage?

The main benefit of a no-point or low-point loan is that it helps buyers who are short on cash qualify for a mortgage.  "Points" is the term lenders use for the loan origination fee.  One point is equal to one percent of the loan amount.  If you have enough income to qualify for the monthly payments, but have difficulty raising money for the down payment and closing costs, a no-point loan could be the solution.  Also, if you plan to keep the loan for a short period of time, you will save money if you don't pay points.  For example, if you are buying a home to fix up and resell within a year, a no-point loan will keep your closing costs down so that you can conserve cash for renovations.

When is mortgage insurance required?

Lenders usually require mortgage insurance if the loan amount exceeds 80 percent of the purchase price.  Mortgage insurance (also called private mortgage insurance, or PMI) protects the lender from default, which occurs when a borrower stops making loan payments. The borrower pays the insurance premiums.

How much does mortgage insurance cost?

The annual premium ranges from one half of 1 percent or less to nearly 1 percent of the loan.  Mortgage insurance premiums vary depending on the carrier, the type and amount of the mortgage, and the payment plan.  Premiums are higher for adjustable-rate mortgages than fixed-rate mortgages.  Insurance premiums are also higher on larger loan amounts.

Is private mortgage insurance deductible?

No.  The cost of private mortgage insurance is not deductible.  Only points paid in the year of sale, mortgage interest and property taxes are tax-deductible.

How can I avoid Private Mortgage Insurance?

If you have a loan amount that exceeds 80 percent of the value of the property, you can avoid private mortgage insurance (PMI) by breaking the mortgage into two.  Let's say you have 10 percent down and you can get a first mortgage for 80 percent and a second mortgage for 10 percent of the price.  Many lenders will not charge PMI with this financing arrangement.  Another way around PMI with a high loan-to-value mortgage is to use a portfolio lender.  Portfolio lenders generate loans to hold in their own portfolio, not to sell to other investors.  Many portfolio lenders self-insure for PMI.  To cover the cost of self-insuring, the lender charges the borrower a higher interest rate that is tax-deductible.

Please call or with any questions you may have and we will do our very best to serve you.  Thanks for visiting our site and we hope to hear from you so that we can work together to find you your dream property.

Sponsoring Broker:  Austin Texas Homes LLC