Everything You Need To Know About PMI
Private Mortgage Insurance, commonly known as PMI, protects mortgage lenders in the event borrowers default on home loans. If you’re purchasing a home and putting less than 20 percent down on a conventional loan, chances are your lender will require PMI. Typically, the charge is added to your monthly payment on top of the principal, interest, homeowners insurance and property tax. To learn more about PMI, read through the commonly asked questions below.
Are there different types of PMI?
When lenders discuss PMI, they usually mean insurance purchased through the private sector on a conventional home loan. Occasionally, you’ll hear the term Mortgage Insurance Premium (MIP) used instead. MIP is a specific type of mortgage insurance purchased through the federal government and required on FHA loans.
How long do I have to pay PMI?
Most often, lenders will release borrowers from paying PMI premiums once they have established a loan-to-value ratio of 80 percent. Essentially, this means that you can stop paying PMI when you own 20 percent equity in your home. It’s wise to keep track of your payments and call the lender to request release from PMI when you’ve acquired 80 percent equity. (They are not required to automatically release you from paying PMI until you reach 78 percent.)
Is PMI expensive?
Mortgage insurance rates vary by lender, and based on the terms of the borrower’s loan. A lower down payment typically means higher PMI, and vice versa. Credit scores also play a part in determining PMI rates but, on average, the monthly payment will range from $30-$70 for every $100,000 borrowed.
If your lender is requiring you to pay Private Mortgage Insurance fees, be sure to ask any questions you may have about the type of PMI, length of payment and rate quotes from several insurers.
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