mortgage insurance or PMI as is known is a form of insurance that most of the new
homeowners are required to purchase. This is particularly so that if their down
payment is 20 percent or less of the valued price or sale price of a particular
reason for the private mortgage insurance is to protect lenders in the case the
new homeowner defaults on their home loan.
private mortgage insurance only protects lenders, it has a bad reputation
overall, but actually it is a good thing. The reason is that 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 to buy a home had
the down payment remain the same. To qualify for home loans, private mortgage
insurance can help you achieving, which is another important reason that you
should have this life insurance.
Cost of Private Mortgage Insurance
on the mortgage loan and the monthly down payment, there can be variation in
the cost. Usually, it is half a percent. The following estimated formula can
help you calculate your private mortgage insurance:
private mortgage insurance = 100 – (percentage of down payment paid) * (sale
price of house) * 0.05
Let us take
an example. Suppose you brought a $500,000 house. You pay a 2 percent down
payment. So using the formula as defined above:
monthly mortgage insurance, dividing by 12, will be around $167.
important point to be noted is that 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
some cases where the homeowners are allowed to continue, by their lenders,
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 (Fair Isaac Corporation) score plays an
important part in this as well.
do not like paying private mortgage insurance for years. There are some ways
One way is
to pay your home loan with higher interest rate. If you agree to pay a higher
interest rate, some lenders will waive the private mortgage insurance
requirement. To go on ahead, it can be a good idea as mortgage interest is tax
to avoid paying private mortgage insurance is that you can prove the lender the
fact that the value of your home has risen. If the value of your home has risen
significantly, your home has already had the 20 percent or more equity that 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.