Scott Storace - Branch Manager, 100 Pacifica Drive Ste. 140, Irvine CA 92618 NMLS #226339 949.973.0141

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LPMI: Understanding the Debt Structure

Rising rents and recovered home values are strong indications of a healthy housing market.  But, household income remains largely unchanged.  As a result, those eager to buy at a time when interest rates are still low may be challenged by tight debt-to-income ratios.  Should this be the case, LPMI could be an option.  And, understanding LPMI and debt structure will be key!

What is LPMI?

LPMI or, lender-paid mortgage insurance is a private mortgage insurance premium paid by the consumer through the lender.  That means the cost of private mortgage insurance is built into the consumers interest rate.  However, many consumers are unaware of how LPMI is structured into their loan.  In fact, some have even gone so far as to say that LPMI is built into the loan without consumer knowledge.  This, of course, is untrue.

Consumer protection laws are in place today to ensure that buyers are fully aware of their mortgage loan structure.   Still, it’s an invaluable safeguard to work with a lender who truly understands debt structure, consumer protection laws and your financial goals.  That said, buyers must first understand that LMPI option does come with a cost.  However, what’s interesting about LPMI is that when compared to it’s counterpart, LPMI can also be a money and time saving financing tool.

Take a look at the example below.  Using a $200,000 home with the same down payment and loan amount, borrower-paid mortgage insurance is being compared to LPMI.  Notice that interest rate for LPMI is a quarter of a point higher.  As a result, the monthly principle and interest payment is also higher.  Now, look at the monthly private mortgage insurance premium in both columns.  With LPMI, there is no additional payment every month.  In fact, the total monthly payment with LPMI is about $50 less.  What’s even more interesting is the savings LPMI reveals after 10 years!

See how LPMI compares to BPMI. Depending on the buyer's circumstances, it could be the best money-saving option!

See how LPMI compares to BPMI. Depending on the buyer’s circumstances, it could be the best money-saving option!  APR not included in this example.

LPMI also helps buyers who:

  • Have a smaller initial investment for a home
  • Prefer a reduced monthly payment
  • Prefer a potentially larger tax deduction
  • May be likely to move or refi within in 10yrs
  • Prefer the cost of PMI to be built into their interest rate (especially since lender’s are more likely to shop the best deal)!

If you’re a buyer interested in the benefits of buying a home using LPMI, contact me.

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