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  1. #1

    What is 'private mortgage insurance' ?

    Ever wonder what private mortgage insurance really is? Well here you go!!:
    Private mortgage insurance or PMI as is known is a form of insurance new homeowners are required to purchase. This is particularly so if their down payment is 20 percent or less of the property's valued price or sale price. The main reason for private mortgage insurance is to protect lenders in the case the new homeowner defaults on their home loan.

    Although private mortgage insurance has a bad reputation since it only protects lenders, it is actually a good thing. Reason is it has allowed millions of people to be able to buy homes with smaller down payments. Previously, these people would not have been able to afford a home had the down payment remain the same. Another important reason is private mortgage insurance can help you qualify for home loans.

    Cost of Private Mortgage Insurance

    The cost actually varies depending on the mortgage loan and the monthly down payment. Usually, it is half a percent. To calculate your private mortgage insurance, you can use this estimated formula:

    Annual private mortgage insurance = 100 - (percentage of down payment paid) * (sale price of house) * 0.05

    Let's take an example. Suppose you brought a $500,000 house. You pay a 20 per cent down payment. So using the formula as above:

    Annual private mortgage insurance = (100 - 20) * $500000 * 0.005 = $2000

    Your monthly mortgage insurance will be around $167.

    One important point to note is you should always keep track of your payments and notify your lender when you have reached 80 percent equity of your house. Even though the Homeowner Protection Act requires lenders to notify you of how long it will take you to pay, it is still better to keep track of it yourself.

    There are some cases where lenders make homeowners continue their private mortgage insurance all the way through the lifetime of the loan. This usually applies to high risk borrowers. Therefore your payment history and credit rating such as your FICO score plays an important part as well.

    Some people hate paying private mortgage insurance for years. There are some ways around it.

    One way is to pay more interest on your home loan. Some lenders will waive the private mortgage insurance requirement if you agree to pay a higher interest rate. Since mortgage interest is tax deductible, it can be a good idea to go ahead.

    Another way to avoid paying private mortgage insurance is to prove to the lender that the value of your home has risen. If the value of your home has risen significantly, your home have already have the 20 percent or more equity you need to cancel the mortgage insurance. However, it does take time for the lender to verify your claim, sometimes as long as a year.

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  2. #2
    Join Date
    Jan 2015
    Posts
    92

    Re: What is 'private mortgage insurance' ?

    I have never heard of this kind of insurance before. Is it a new thing? I do not think that anything was discussed when we purchased our home in 2002 for this.

  3. #3

    Re: What is 'private mortgage insurance' ?

    One way is to pay more interest on your home loan. Some lenders will waive the private mortgage insurance requirement if you agree to pay a higher interest rate. Since mortgage interest is tax deductible, it can be a good idea to go ahead.
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  4. #4
    Join Date
    Feb 2016
    Posts
    16

    Re: What is 'private mortgage insurance' ?

    Private Mortgage Insurance - PMI


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    What is a 'Private Mortgage Insurance - PMI'

    A risk-management product that protects lenders against loss if a borrower defaults. Most lenders require private mortgage insurance (PMI) for loans with loan-to-value (LTV) percentages in excess of 80% (the buyer put down less than 20% of the home's value upon purchase). This allows borrowers to make a smaller down payment of 3% to 19.99%, instead of 20%, allowing them to obtain a mortgage sooner since they donít have to save up as much money. Borrowers pay their PMI monthly until they have accumulated enough equity in the home that the lender no longer considers them high risk.
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    BREAKING DOWN 'Private Mortgage Insurance - PMI'

    PMI only applies to conventional loans. Federal Housing Administration loans have their own mortgage insurance with different requirements, while Veterans Administration loans donít require any mortgage insurance despite allowing 0% down payments.
    PMI costs about 0.25% to 2% of your loan balance per year, depending on your down payment, loan term and credit score. The greater your risk factors, the higher the rate you pay. Also, because PMI is a percentage of the loan amount, the more you borrow, the more PMI youíll pay. There are six major PMI companies in the United States. They charge similar rates, which are adjusted annually.
    Keep track of your payments on the mortgageís principal. When you reach 20% equity, you can notify the lender in writing that it is time to discontinue the PMI premiums. Lenders are required give the buyer a written statement at closing notifying them how many years and months it will take for them to pay 20% of the principal. You can also request PMI cancelation if your equity grows to 20% due to home-price appreciation or because youíve made additional principal payments. The lender should comply as long as your homeís value hasnít dropped, you have a history of on-time payments and you donít have a second mortgage.
    Once your down payment, plus the principal youíve paid off, equals 22% of the homeís purchase price, the lender must automatically cancel PMI as required by the federal Homeowners Protection Act, even if your homeís market value has gone down (as long as youíre current on your mortgage).









    Read more: Private Mortgage Insurance (PMI) Definition | Investopedia http://www.investopedia.com/terms/p/...#ixzz41CUJZUdv
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