There's good news for people who were surprised when their mortgage payments went up. There's a chance that an insurance policy could help ease some of the stress.
When interest rates went below 5%, interest-only loans and adjustable-rate mortgages became popular because they let people make low monthly payments with little or no money down.
But now, many homeowners are seeing their payments go up because their low introductory rates are going up and their interest-only periods are coming to an end.
According to a service that keeps track of foreclosures, RealtyTrac, the number of foreclosures went up by 45 percent in January.
"One trillion dollars' worth of mortgages will get new interest rates next year," said Bill Ruh, Government Affairs Director for the Citrus Valley Association of Realtors in California. "We could be facing a major crisis," he added. "Buyers may think they can only buy a home with a short-term loan or a fancy combination loan, but a 30-year fixed mortgage is a safe and reliable option."
People have tried to avoid it in the past, but new types of private mortgage insurance (MI) offer that safe option with a lower monthly payment than many combo loans.
One kind of mortgage insurance, called "single premium," lets buyers borrow the full amount they need without having to pay extra fees every month. This is because the one-time premium is paid for in the same loan. And if the home's value goes up enough in the first five years to make it possible to cancel the insurance, buyers get a part of their money back. In the real estate market of today, mortgage insurance can end as soon as two or three years after it starts.
Compare the savings between a "single premium" loan and a "piggyback" mortgage on a $175,000 home bought with a 5% down payment and a "single premium" loan.
The monthly payment for the single premium loan is $1076, while the monthly payment for the piggyback is $1142. If the mortgage insurance was cancelled after three years, the person with a single premium loan would get a one-time refund of $1,630.
Kevin Schneider of Genworth Financial, Inc. said, "Monthly payments are among the lowest with single premium products, and homeowners can rest easy knowing that payments won't change."
