Lender Paid Mortgage Insurance

by Mercy
(Washington USA)

Ask Kate: Lender Paid Mortgage Insurance (LPMI) - Did my lender disguise mortgage insurance by increasing my interest rate? Hi Kate, Back in 2003 I refinance from a FHA loan with mortgage insurance into a "Conventional Uninsured" loan using the same nationwide lender.

When I refinanced, I specifically was told that they would drop the PMI because I was an existing customer.

Last week, I received a letter from my lender saying that when I took out my mortgage, "I chose" Lender Paid Mortgage Insurance which is built into the interest rate. (The context of the letter was to say that since my Loan to Value is now less than 78%, I might consider refinancing in order to drop the LPMI.)

I never agreed to LPMI, and I reviewed my closing documents and there is not a single mention of it. I called them and they said their system does not give them a breakdown of the LPMI amount.

I want to find out for sure whether or not I'm paying LPMI, and if so, how much. And if so, I believe I have been wronged, and have been paying too much interest for 6 years.

Do you have any suggestion on how I should proceed to straighten this out? Thank you very much! Mercy

Kate Answers: Lender Paid Mortgage Insurance (LPMI)

First of all Mercy, a little background on mortgage insurance. MI is not automatically removed upon refinancing from an FHA loan to a conventional mortgage nor because a homeowner is an existing customer.

In actuality, the decision to charge MI is based on a ratio of the loan amount to the appraised value, referred to as LTV. With more than 20% equity, the bank cannot charge mortgage insurance.

LPMI is a lesser known method of paying mortgage insurance. The interest rate is increased versus the addition of mortgage insurance to the monthly payment, Borrower Paid Mortgage Insurance.

Pros and Cons For The Informed Homeowner

There are pros and cons to each method of payment. Advocates of LPMI point out that Lender Paid Mortgage Insurance generally costs the homeowner less than Borrower Paid Mortgage Insurance. However, refinancing is required to remove LPMI making it objectionable to critics.

Sometimes borrowers do not have a choice if they want or need a particular mortgage. Programs that accept LPMI frequently do not allow for Borrower Paid Mortgage Insurance.

Now back to your dilemma, Mercy. Assuming you refinanced less than 80% of the value of your home in 2003, were you charged Lender Paid Mortgage Insurance in error? If so, how can you prove it for reimbursement?

Choices For The Savvy Borrower

Peruse your loan documents with a fine tooth comb. If you are convinced you're paying LPMI in error, address the matter directly with your lender for a resolution.

If this does not bring satisfaction, you have the right to obtain legal counsel to pursue the matter on your behalf.

You could also look into refinancing to a lower interest rate with another lender. Should you refinance? Find out now! Quicken Loans - The Easiest Way To Get A Home Loan

If you still have questions about Lender Paid Mortgage Insurance, write me at Ask Kate where every question is a good question.

Mercy, I depend on word of mouth! I hope you'll spread the word by sharing my websites with your friends.

Finally! Straight Scoop About Private Mortgage Insurance

What Is PMI - Could private mortgage insurance be your solution to equity and down payment problems?

How Do Lenders Calculate PMI - Is it a one-size-fits-all amount or does the cost vary?

How Do I Cancel PMI - Will refinancing or a new appraisal be required to get rid of PMI?

PMI Decision Making - What do you when the PMI process is getting in the way of buying a house or mortgage refinancing?

FHA Refunds For Mortgage Insurance - You might not know this but you could be entitled to an FHA mortgage insurance refund.

Want to see what others are asking about mortgage insurance?

Years in the making, go to Answers by Kate - Paying Private Mortgage Insurance and bookmark it to your favorites so you can easily return in the future.

Return home from Lender Paid Mortgage Insurance

The information you obtain at this site is not, nor is it intended to be, a substitute for financial, real estate or legal advice. You should consult an attorney, accountant, lender or real estate agent, as applicable, for advice regarding your individual situation. Comments and opinions found here are not necessarily those of Get-Your-Best-Mortgage-Rate.com

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Lender Paid Mortgage Insurance

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More Help For Mercy - Sorting Out LPMI
by: Jill

Just read your response to a reader about LPMI. I really like your approach. You give "context" and a clear definition of what the "terms" mean, then talk about the process that the banks use and what conditions exist that cause what the reader is experiencing.

Excellent stuff.

Solutions to the reader's problem whether refinance or legal counsel, both carry an additional cost. I guess the trick is to really be clear about the structure of the loan before these type of problems arise.

I think of Ronald Regan's notion of "trust but verify", or the one I use, "inspect what you expect".

It would seem that the reader might have asked that there be language that states the LPMI is not part of the deal, or at least document conversations about how, if, and when LPMI applies... Basically what are the "right questions" to ask upfront, to save on headaches later...

Thanks again to our friend Jill
by: Kate

Jill,

We all appreciate your input here. I know from our conversations how much your mom influenced your outlook on credit responsibility.

Thanks for taking the time to assist your fellow homeowners.

Kate

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