Private Mortgage Insurance Basics
Will you be asked to pay Private Mortgage Insurance, or PMI?
Most lenders will require you to carry PMI if you cannot put 20% or more of
your loan amount forward as a down payment. PMI protects the LENDER in case
you default on your payments. PMI does not protect you, the borrower. The
lender will secure the PMI policy for you, and you will pay for it. Most
people choose to have PMI added to their monthly mortgage payments, but other
payment arrangements are possible. The monthly cost of PMI is based on your
loan amount. An approximate cost of PMI for a $100,000.00 loan is about $50.00
a month.
Your Magic Number
When the equity in your home reaches 20%, you can have the PMI policy cancelled.
Your monthly payment will be recalculated to reflect that you are no longer
paying for the insurance, and you can save some money. But lenders do not
have to cancel your PMI until your equity reaches 22%, so you can spend extra
money on this that you don’t have to. Your best bet is to figure the
dollar amount that you need to reach in order to have 20% equity. Then, obtain
an amortization schedule from your lender, and see when you will reach that
figure. That is the date to keep in mind so you can cancel it without any
extra cost to you.
It’s Not Always Automatic
Not all people have the convenience of having their PMI automatically cancelled.
The Homebuyer’s Protection Act that requires lenders to do this does
not cover loans that closed before July 29, 1999. It also does not cover
VA loans or FHA loans. So be aware that you might not have someone else taking
care of this for you. Check it out!
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