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Again, that isn't how the mortgage industry works. The increased risk that you speak of does exist and is an additional charge on the note called Private Mortg
by austincheney 7y ago
Again, that isn't how the mortgage industry works. The increased risk that you speak of does exist and is an additional charge on the note called Private Mortgage Insurance (PMI). It is a percentage fee the note holder pays to the mortgage company for an insecure transaction, such as low down payment. It is automatic and at set rates and the note holder doesn't get a voice. Either way the mortgage holder is financially secured.
Interest rate, on the other hand, is determined by all manners of risk factors, but not so much the down payment. Typically the bank assesses the risk of the applying borrower using things like employment history, financial factors, credit history, and other factors allowed by law.
Fortunately, my 0 down situation comes with no PMI and a low interest rate.
- sokoloff 7y agoPMI, though often split out as a separate line item and sometimes paid to a different party, serves to increase the effective interest rate on the loan. That is how the mortgage industry works. > The increased risk that you speak of does exist and is an additional charge on the note called Private Mortgage Insurance (PMI). It is a percentage fee the note holder pays to the mortgage company for an insecure transaction, such as low down payment. It is automatic and at set rates and the note holder doesn't get a voice. Either way the mortgage holder is financially secured. PS: The mortgage "note holder" is the lender, not the borrower. In the quoted paragraph, you should replace the first two uses of "note holder" with "borrower". That "percentage fee" is exactly what makes the effective interest rate higher.