In today’s recovering finance environment, credit union loan officers have a simple solution when advising members seeking a low-down payment solution: single-premium mortgage insurance (MI).
Single-premium mortgage insurance lowers closing costs for members by allowing them to finance the MI as part of the loan. This option can be the lowest in premium cost, saving members hundreds of dollars a year over monthly premiums—even if the loan is paid off early.
Compared with higher up-front premiums now charged by the Federal Housing Administration (FHA), conventional financed singles are making private mortgage insurance more attractive than ever before.
Here’s a comparison that illustrates United Guaranty’s* single-premium cost savings over FHA and a conventional monthly premium plan. The bottom row shows savings with MI from United Guaranty over FHA loans. And by using the single premium option, members stand to save more than $2,000 a year with conventional MI.
United Guaranty Performance Premium®—Credit Unions Effective April 1
|Borrower-paid monthly||Borrower-paid single||FHA financed|
|$83 monthly||$3,380 up-front||$3,500 up-front + $229 monthly|
|50 bp annually||169 bp||175 bp (up-front), 135 bp (annually)|
|3.75% interest rate||3.755 interest rate||3.25% interest rate|
|Five-year savings: $6,300 (compared to FHA as of 4/1/13)||Five-year savings: $11,340 (compared to FHA as of 4/1/13)|
Assumptions: Base loan amount, $200,000, two borrowers, 740 FICO, 41% DTI, 30-year fixed-rate purchase loan, single-family house, Stable market, 95% LTV United Guaranty, and 96.5% LTV FHA. Performance Premium pricing as of November 19, 2012. FHA Rate source; FHA Mortgagee Letter 2013-4.
More and more, savvy credit unions are recommending single-premium options. Why? Their members close quicker and pay less per month than with most other MI options, including FHA.
Home buyers who choose single-premium options not only get a lower monthly MI cost, closing costs for mortgage insurance can be minimized by financing the premium into the loan amount so there’s no premium to pay up-front.
Another plus: private mortgage insurance may qualify for cancelation after the loan-to-value (LTV) reaches 80%. After June 3, 2013, FHA coverage means borrowers with limited down payment funds must retain default coverage for at least 11 years and possibly for the life of the loan, depending on the LTV.
Consider financed single-premium mortgage insurance for your members. This simple and low-cost alternative can help you reach more potential home buyers and simplify their home buying experience.
*United Guaranty is a marketing term for United Guaranty Residential Insurance Company and United Guaranty Mortgage Indemnity Company. United Guaranty and Performance Premium are registered marks. Coverage is available through admitted company only.