|
What is Mortgage PMI?
 PMI (Private Mortgage Insurance) refers to the insurance you must purchase if the downpayment on your home is less then 20% of the appraised value or sale price. This emables you obtain a mortgage with a smaller downpayment as your lender is now protected in case you default on the mortgage.
PMI charges depend on how much you put down on the home purchase and the how much you borrow. Typically PMI is about 1/2 to 1% of the loans value.
Can you give me a PMI Example?
Let's say you put down 10 percent or $10,000 on a $100,000 house. The lender multiplies the 90 percent loan, or $90,000, by .005. The result is an annual PMI of $450, which is divided into monthly payments of $37.50.
PMI has become popular with soaring home prices because many borrowers don't have a full twenty percent to put down towards the purchase of a home. With PMI, borrowers need to maintain the PMI payment until they have paid off about 20% or 1/5th of the loans value which can often take several years or more.
Do I have to pay PMI?
Some lenders will remove PMI, but offer a higher interest rate on the loan. Additionaly, with the mortgage meltdown of 2008, some loans are requiring that borrowers have 10% to 20% down as a mandate.
Other ways to avoid PMI is to use two loans and a 10% downpayment. The 90% loan is purchased with the 1st mortgage which is usually equal to about 80% of the home price, and the borrower then obtains a second mortgage for the remaining 10% of the price. The second smaller mortgage will usually have a higher interest rate, but it doesn't add that much since it's usually a smaller loan valued at about 10% of the total loan. The monthly payments on both loans are usually cheaper than taking out one loan and paying PMI.
|
