You know there’s a lot of misinformation about mortgage insurance out there so let me tell you a few things about mortgage insurance. First of all mortgage insurance is generally not tax deductible at the income brackets of CRNAs. Mortgage insurance generally costs between 0.5 and 1.5% per year so for a $400,000 loan, that’s going to cost you a half to one and a half percent so you’re talking about somewhere in the neighborhood of $2000 to $6000 per year for that mortgage insurance – not tax deductible. So certainly it drives up the cost of the loan but what is really not understood about mortgage insurance is how you get mortgage insurance off. Now, by law when the loan amortizes to a seventy-eight percent loan to value the servicer has to drop that mortgage insurance off. That’s law.
Now, if the home appreciates and you pay down the loan with not the normal amortization then you can go in get the home appraised to prove or document that you have at least the 20% in equity and you can get your mortgage insurance dropped. Now many clients have told me that is an incredibly onerous process they’ve given up on the process because it was so onerous and they just decided to refinance, so depending on the servicer of your loan that may be much more difficult than what you’re imagining on the onset and the fact is what you’re doing 5% down on a conventional loan in most cases your mortgage insurance isn’t going to drop off you’re not going to hit that 78 percent loan to value range until you’re about 11 years into your home.
So if you were to be at 4% interest rate plus 1% mortgage insurance for the first 11 years you’ve got a total cost greater than 5% – and Isay greater than 5% because remember that mortgage insurance isn’t tax deductible. When you compare that to a CRNA loan where you may be at maybe 4.2 or 4.3 in today’s world you’re saving 0.6, 0.7, 0.8% on a $400,000 loan – about $3000 dollars a year over eleven years. So you can easily save $30, $35, $40,000 by avoiding mortgage insurance. Now if you were in the home for thirty years, which virtually none of our clients are, but if you were, then potentially it would be better to go with an option with mortgage insurance.
But from our history, from what we see clients’ patterns being that within five to seven years, almost in every case, our clients’ lives have changed enough – meaning income’s gone up debt’s gone down family size has expanded relationships change. There’s enough change over five to seven years that almost in every case there is either a move or a refinance because they decide hey this is where we want to be for life and we’ve paid down a lot of these student loans now let’s go to a 15-year loan and get this thing paid off quick. So, that’s a little bit of information about mortgage insurance.