Private Mortgage Insurance
Private Mortgage Insurance (PMI)
PMI plays an important role in the mortgage industry by protecting a lender against loss if a borrower defaults on a loan. Also, PMI enables borrowers to purchase a home with less cash as low as 3% or 5% down payment. You can buy a home now without waiting years to save for a larger down payment. PMI also applies to homeowners who are interested in refinancing their existing loan with a loan amount over 80% of the current property value.
Why mortgage insurance (MI)?
All mortgage loans carry risk. If you finance over 80% of the property value, it is considered a higher risk than a loan equal to or less than 80%. For those borrowers who can’t make the full 20% down payment, PMI is considered a valuable financing tool that offers benefits to the lender and borrower. Mortgage insurance reduces the risk by protecting the lender.
What is Private Mortgage Insurance Payment?
The payment is an additional amount to be paid every month with the regular payment of principal and interest and taxes and insurance.
The PMI payment is derived from several factors of the loan.
- Amortization schedule (term of the loan)
- Primary, secondary, or investment property
- FICO Score
- Loan balance
- Total monthly debt/ gross montly income
- Type of loan (rate & term, cash out, interest only)
The qualifications could change without notice. Consult your loan representative to receive an estimated payment and to review the qualifications. The minimum payment could be as low as $50/month depending on the factors listed above.
Cancellation Of Private Mortgage Insurance (PMI)
You have the opportunity to request cancellation of PMI when you pay down your principal balance that equals 80% or less of the original purchase price or the original appraised value on a refinance transaction. Another example is when your home value in the area appreciates combined with paying down the principal balance of the loan equating to 80% of the current appraised value. (value $250,00/$200,000 balance) = 80%. Home Improvements completed after the loan transaction may be another factor which can increase the property value.
Another qualification is to maintain a good payment history on the loan to show never 30 days late within one year of your request or 60 days late within two years of your request. Your lender may require evidence that the value of the property has not declined below its original value. Contact your lender or servicer for clarification of the guidelines and how they will apply to you and your loan.
Automatic Cancellation of Private Mortgage Insurance (PMI)
Mortgage lenders or servicers will automatically cancel PMI coverage on most loans once you pay down your loan balance to 78 percent of the original balance based on the original amortization schedule of the transaction in addition to meeting all other financial conditions such as 78% of the appraised value. Contact your lender or servicer for clarification of guidelines and how they will apply to you and your loan.
