Lender Paid Mortgage Insurance
by Mercy from 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.
But should you refinance? Here are my fresh refinance ideas
. Only you can decide!
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.