What is PMI?
PMI stands for private mortgage insurance. It is a type of insurance that most mortgage lenders require a buyer to have if their down payment is less than 20% of the loan amount.
Why does the mortgage lender require you to get PMI?
Private mortgage insurance protects the mortgage lender against loss if a borrower stops making payments. An investor may also require the buyer to purchase PMI. Some cash-out refinance transactions require PMI at 75% loan-to-value.
How much does PMI cost?
The cost of private mortgage insurance varies according to the size of the down payment and the loan. Usually, the cost is about one-half of one percent of the loan. Private mortgage insurance usually costs the borrower between $25 to $100 a month. Private mortgage insurance premiums are not tax deductible.
Does PMI benefit homeowners?
Private mortgage insurance can be a benefit for homeowners. The main benefit to homeowners is that private mortgage insurance allows them to buy a house without having to put up a 20% down payment. Also, once the mortgage is paid down to where their home equals less than 80 percent of the original purchase price they can cancel their PMI payments. Tips on how to cancel private mortgage insurance.
Your mortgage payment and PMI
Your mortgage payment pays off the mortgage loan, but a portion also gets put into an escrow account to pay for real estate taxes and a variety of different types of insurance. Some of the most common types of insurances included in your mortgage payment are: homeowners insurance, hazard insurance, flood insurance, and PMI insurance.