Private Mortgage Insurance – What Is PMI?

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private mortgage insurance

If you’re purchasing a home with a conventional loan and make a down payment that falls below 20% of the purchase price, your lender may require that you pay private mortgage insurance (PMI).

PMI (Protective Mortgage Insurance) shifts risk away from lenders to insurers until you reach a certain amount of equity in your property. While it’s an initial expense that helps you purchase sooner and build equity faster, it can have significant long-term benefits in the long run.

What is PMI?

Private mortgage insurance (PMI), also known as PMI, is a type of supplemental mortgage insurance required on some conventional loans. Generally speaking, PMI becomes mandatory if your down payment falls below 20% or your loan-to-value ratio (LTV) rises above 80% based on the original purchase price and loan amount.

It’s an essential supplemental insurance policy that safeguards the lender in case you don’t pay your mortgage. But it doesn’t guarantee you won’t fall behind on payments or that your home will be repossessed and foreclosed.

What is the cost of PMI?

Private mortgage insurance (PMI) is a type of home insurance that’s often required on conventional loans when you put less than 20% down. It serves to safeguard the lender in case you can’t make your mortgage payments.

PMI costs vary between loans based on several factors such as your down payment amount and credit history. It’s essential to be aware of these costs at the start of the mortgage process.

Typically, you’ll pay PMI in monthly installments that are included with your mortgage payments. The amount and frequency of these premiums will be outlined on either your Loan Estimate or Closing Disclosure document.

Once you reach 20% equity or an 80% LTV ratio, it is possible to stop paying PMI. However, be aware that some lenders may charge an additional fee in order to do so; this could mean the difference between saving a few hundred dollars each month and adding extra expenses. Therefore, ask your loan officer for assistance in comparing realistic options that fit within your budget.

How long do I have to pay PMI?

PMI (private mortgage insurance) is required on conventional mortgages with a down payment of less than 20% and loans with an LTV ratio of more than 80%. This insurance helps reduce lenders’ risk when they loan money to buy a home.

Most lenders will inform you of the length and cost of PMI coverage early in the mortgage process. You’ll find this information on your Loan Estimate or closing disclosure documents.

Once you reach the midpoint of your loan’s amortization schedule, your lender is required to automatically stop providing PMI. In most cases, this occurs when your loan balance reaches 78 percent of your home’s original value.

However, this time period may differ for certain borrowers. For instance, higher home price appreciation and regular principal payments will reduce the need to pay for PMI. Refinancing your loan also helps expedite the termination process.

Can I get rid of PMI?

PMI can be a significant expense, adding hundreds to your monthly mortgage payment. You may feel like using that money towards other things such as taking a vacation or purchasing a new car – but PMI requires payment in advance!

Eliminate PMI and you could save thousands of dollars over the course of your loan – but it takes some planning.

One way to eliminate PMI is by paying off your mortgage at or below 80% LTV ratio. You can do this by making extra payments, taking advantage of equity in your home, or refinancing to reduce your interest rate.

Another way to eliminate PMI is by requesting its removal at a certain home equity milestone. Generally, this requires owning at least 20% equity in your house.

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