Refinancing Programs When PMI Is Involved

Refinancing is a viable option when homeowners can reduce their monthly mortgage payments by receiving a lower interest rate or modifying other terms of their original loan agreement. Lenders require private mortgage insurance when borrowers do not meet certain requirements for down payments and equity in their homes. PMI is insurance for the lender in case the borrowers default. Borrowers are responsible for paying PMI.

Standard Refinancing Programs

There are a couple of standard programs available for borrowers, fixed-rate and adjustable. Fixed-rate programs keep the interest rate the same throughout the life of the loan. This means that borrowers always pay the same monthly payment of principal and interest. PMI is required when borrowers do not have at least 20 percent equity in their homes. PMI rates usually decrease as equity increases. Adjustable-rate programs keep the interest rate the same for a certain period of time, usually from one to seven years. Then the rate increases or decreases every year for the life of the loan. Borrowers' mortgage payments will fluctuate as the interest rate changes. PMI is required for adjustable-rate programs as well when borrowers do not have at least 20 percent equity in their homes.

Home Affordable Refinance Program

The Home Affordable Refinance Program was designed for homeowners whose loans are owned by Fannie Mae. It is for people who are current on their mortgage payments and want to reduce their interest rates, but have been turned down for refinancing because they owe more than their home is worth. Since there is a lack of equity in the homes, borrowers still have to pay PMI. Borrowers who have adjustable-rate mortgages often take advantage of this program when their mortgages are about to reset to a higher rate. HARP reduces interest rates to levels that make payments affordable over the life of the loan. The rate depends on each borrower's specific situation.

Home Affordable Modification Program

The Home Affordable Modification Program, also referred to as Making Home Affordable, modifies or changes the the terms of loan agreements in favor of the borrowers. Borrowers still have to pay PMI until they have 20 percent equity in thier homes. HAMP is for homeowners who have difficulties making their monthly mortgage payments. The program modifies their mortgage payments so that they do not exceed 31 percent of their income. Mortgage companies do this by reducing the interest rate, extending the loan term, and deferring part of the principal and waiving the interest on the amount.

Second Lien Modification Program

Another refinancing program that requires borrowers to pay PMI is the Second Lien Modification Program. Homeowners who have two mortgage payments can refinance or modify the second lien and lower their monthly payments. In many cases, second mortgages have high interest rates. Combine this with the expense of paying the first mortgage, and some borrowers cannot afford it. The Second Lien Modification Program reduces monthly payments by lowering interest rates, extending terms and deferring part of the principal. To qualify, homeowners must have loans secured by Fannie Mae or Freddie Mac.

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