What is Private Mortgage Insurance (PMI)?
On a conventional mortgage, when your down payment is less than 20% of the purchase price of the home mortgage lenders usually require you get Private Mortgage Insurance (PMI) to protect them in case you default on your mortgage. In order to avoid this, you can ask your lender about other options.
How Much Does Private Mortgage Insurance (PMI) Cost?
PMI costs vary from insurer to insurer, and from plan to plan. Buyers that have at least 5% down can pay approximately 0.78% times the annual loan amount. This may not seem like a lot, but once PMI is on a loan, you have to refinance to get it removed and it could end up costing you hundreds of extra dollars.
How is Private Mortgage Insurance Paid?
PMI fees can be paid in many ways depending on the company used:
- Borrowers can choose to pay the 1-years premium at closing, and then an annual renewal premium is collected monthly as part of the house payment.
- Borrowers can choose to pay no premium at closing, but add on a slightly higher premium monthly to the principal, interest, tax, and insurance payment.
- Borrowers who want to sidestep paying PMI at closing but don’t want to increase their monthly house payment can finance a lump-sum PMI premium into their loan. Should the PMI be canceled before the loan term expires through refinancing, paying off the loan, or removal by the loan provider, the borrower may obtain the rebate of the premium.
Could Obtaining Private Mortgage Insurance (PMI) Help Me Qualify for a Larger Loan?
Yes, it will help you obtain a larger loan, here’s why. Let’s say that you are a family with $42,000 Annual Gross Income and monthly revolving debts of $800 for car payment and credit cards, and you have $10,000 for your down payment and closing costs on a 7%-interest mortgage. Without PMI the maximum price you can afford is $44,600, but with PMI covering the lender’s risk you now can buy a $62,300 house. PMI has afforded you 39% more house.
Amerin Guaranty Corporation
303 East Wacker Drive, Suite 900
Chicago, IL 60601
PMI Mortgage Insurance Company
601 Mongomery Street
San Francisco, CA 94111
Commonwealth Mortgage Assurance Company
1601 Market Street
Philadelphia, PA 19103-2197
Republic Mortgage Insurance Co.
P.O. Box 2514
Winston-Salem, NC 27102-9954
G.E. Capital Mortgage Insurance Corporation
P.O. Box 177800
Raleigh, NC 27615
Triad Guaranty Insurance Corp.
P.O. Box 25623
Winston-Salem, NC 27114
Mortgage Guaranty Insurance Corporation
P.O. Box 488
Milwaukee, WI 53201
United Guaranty Corporation
P.O. Box 21567
Greensboro, NC 27420
Cancellation of Private Mortgage Insurance (PMI)
The Homeowners Protection Act of 1998 established rules for automatic termination and borrower cancellation of Private Mortgage Insurance (PMI) for home mortgages. These protections apply to certain home mortgages signed on or after July 29, 1999, for the home purchase, initial construction, or refinance of a single-family home. It does not apply to government-insured FHA or VA loans, or to loans with lender-paid PMI.
With certain exceptions (home mortgages signed on or after July 29, 1999) your PMI must be terminated automatically when 22% of the equity of your home is reached, based on the original property value and if your mortgage payments are current. It can also be canceled at your request with certain exceptions, when you reach 20% equity, again based on the original property value, if your mortgage payments are current.
- If your loan is “high risk”
- You have not been current on your payments within the year prior to termination time or cancellation
- If you have other liens on your property