What is Private Mortgage Insurance? PMI
What is PMI?
PMI is for home buyers who wouldn’t typically be able to afford a large 20% down payment.
Private Mortgage Insurance (PMI) is insurance that protects your lender against non-payment if you default on your loan. Private mortgage insurance is to protect your lender, not you. As the buyer of this coverage, you’re paying the premiums so that your lender is protected. PMI is often required by lenders due to the higher level of default risk that’s associated with low down payment loans.
The average costs of mortgage insurance premiums vary, but they usually are between .5% and 1% of the loan amount, depending on the size of the down payment. For example on a $200,000 loan with a $10,000 down payment, you can expect to pay somewhere around $85 a month. This amount is added to your monthly payment in addition to property taxes and home owners insurance.
There are ways to eliminate PMI over time. You can have an appraisal done on your home. If the value of your home has increased since you purchased it you may be able to terminate your mortgage insurance, once the equity in your home falls below the 80% loan-to-value ratio.
Remodeling can help you eliminate PMI by making home improvements to your home you’re increasing the market value of your house, getting you that much closer to the80% Loan-to-value.
Paying down your mortgage is another option. Making even small additional payments each month can make a big difference over time. Once you get that loan-to-value-ratio below 80%, you’ll no longer be required to make PMI payments.
Tags: FHA Loans, First Time Homebuyers, PMI, Private Mortgage Insurance
