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How to Avoid Mortgage Insurance and Home Insurance

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By : John Cutts    99 or more times read
When most people buy a new home, one of the costs they often forget to factor in is the cost of mortgage insurance. Since many homebuyers don't have a lot of money available to put down as a down payment, the lender requires them to pay for mortgage insurance, which protects the lender if you are unable to make payments on your loan and you go into default.

However, mortgage insurance can get quite expensive over the long-term. The law says that once you have 22% equity in your home, the lender is required to drop the requirement for mortgage insurance. That means that in order to avoid mortgage insurance from the start, you'd have to make a down payment of 22% or more. However, if you can't make a big enough down payment on your home to avoid the requirement of home insurance or mortgage insurance, you do have the option of what's commonly known as a 'piggyback loan'.

A piggyback loan is essentially another loan taken out at the same time as your home mortgage loan. Most often, this loan is a home equity loan, or a home equity line of credit. The piggyback loan allows you to use the equity you build in your home as you pay off your mortgage as a means of covering mortgage insurance. This means that you can make monthly mortgage payments as usual, but avoid paying extra every month for home mortgage insurance by using the equity you build in every payment to pay for the insurance.

This can be a great opportunity to lower your monthly mortgage cost, while also opening your home equity up to your own personal use. If you get a home equity line of credit for your piggyback loan, you can even use your equity to make home improvements, thus improving the value of your home without spending any money other than what you're already paying towards your mortgage.

Talk to your lender about a piggyback loan if you're worried about the additional cost of mortgage insurance. It can be a great opportunity to save money on home insurance.
John Cutts has been educated in the finer points of the foreclosure market over 5 years.

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