F.A.Qs - Mortgage

The Real Estate Settlement Procedures Act (RESPA) sets standards for the calculation of the amount mortgage lenders require borrowers to deposit into the escrow account. RESPA limits the initial deposit into an escrow account to an amount equal to the sum sufficient to pay taxes, insurance premiums, and other charges on the mortgaged property for the first payment period, plus a cushion.
An escrow cushion is an amount of money held in the escrow account to prevent the account from being overdrawn when increases in disbursements occur.
On a monthly basis, mortgage lenders may not require borrowers to pay more than one-twelfth of the total amount of the estimated annual taxes, insurance premiums, and other charges, plus an amount necessary to maintain the allowable cushion.

The easiest way to avoid PMI is by putting 20% down payment; however, PMI can also be avoided if you only have 5% or 10% for the down payment. The way to accomplish this is via a first and second mortgage combination commonly referred to as 80/10/10^s or 80/15/5^s.
These two methods combine a first mortgage lien for 80% of the home price with a second mortgage lien for either 10% or 15% of the home price leaving the remaining 5% or 10% as the down payment. Because the first lien is at the magical 80% loan=to-value, there is no PMI required, even though a second mortgage is being |piggybacked| onto the financing thus allowing for the lessor down payment.
While the second lien terms are not as attractive as first lien rates, the second mortgage is still home mortgage interest and thus deductible as such on your federal tax return where PMI is insurance and offers no deduction.

This question is best answered after careful consideration of your own personal financial goals. Buying down the interest rate (paying points on the mortgage - one point is one percent of your mortgage amount) may not be in your best interest. Here are some reasons why:
Mortgage interest paid is tax deductible in most cases (seek the advice of an accountant or the IRS).
The funds are no longer available to invest, save or use (ie. purchase an IRA, pay off credit card debt at a higher rate, etc.)
Falling interest rates can be taken advantage of sooner if discount points are not paid to buy down the interest rate (the original interest rate was higher).
In the past, if a consumer bought down the interest rate and then refinanced (buying down the rate again), it is possible not enough time will have elapsed to recover the |buy down| amount through the reduced monthly payment. This also occurs if the consumer sells the home before recovering the |buy down| amount.
Not only does the amount paid in discount fees (buy down amount) need to be recovered, the |time value| of the money spent or its |present value| also needs to be recovered. Present value is the income you could have earned or the satisfaction you could have received through alternative use of your money. Remembe to consider the tax consequences of your ultimate decision.

Many tax authorities will mail an informational copy of the real estate tax statement to the homeowner in addition to the Credit Union.  However, there are some statements tax authorities do not forward to the credit union, and in special cases we will need your assistance in obtaining the bill. If you receive a statement for any of the following, please forward it to our office by mail or fax.
    •delinquent real estate taxes
    •supplemental or additional real estate taxes
    •special assessments
    •if the tax authority will not honor a bill request from another party.