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What is Private Mortgage Insurance (PMI) and Why Do I Need It?

May 22, 2014

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If you haven’t saved up 20 percent of the appraised value or sale price, your lender will require you to get private mortgage insurance (PMI). A mortgage insurance policy protects your lender in case you default on the payments. As a borrower, you pay the premiums, and the lender is the beneficiary.

There are two types of mortgage insurers: Government and Private. The main government mortgage insurer is the Federal Housing Administration. Several corporations underwrite private mortgage insurance.  Keep in mind that even though FHA requires PMI on the life of the loan that the interest rate on the loan is far better than a high loan to value conventional loan.  Depending on your credit score it could be 1% better.  Our representatives can send you a comparison to see how much you can save.  Apply online for a fast pre-approval http://www.pmccanhelp.com.

Conventional PMI monthly fees vary, depending on the size of the down payment and the loan, from around 0.3% to 1.15% of the original loan amount per month. FHA mortgage insurance has an upfront premium of 1.75% of the loan amount and .80% to .85% (2015) of the original loan amount per month.  The plus side is that Private Mortgage Insurance premiums are tax-deductible. Use the MGIC online calculator to see how much your PMI would cost each month on http://mgic.com/ratefinder/index.html.

Important Money Saving Tip

Lenders will automatically cancel the PMI when the balance is at 78%, but this is based off a computer generated calculation of when they assume you will be at 78%. Federal law requires lenders to tell the buyer at closing how many years and months it will take for them to reach that 80% level and cancel PMI. When you reach the point where the loan-to-value (LTV) ratio hits 80%, notify the lender that it is time to discontinue the PMI premiums. You can check websites like http://www.zillow.com to get an estimated value of your home.  The lender will require you to order an appraisal to confirm that you are a 80% LTV before they remove the mortgage insurance, but it will be worth the cost.

If you are in a FHA loan, you may have enough equity to refinance into a Conventional loan and get rid of PMI.  If you are close to 80% LTV you can also bring in the difference at closing to bring down the loan amount.

Those FHA borrowers who can’t qualify for a Conventional loan can also reduce their rate or PMI by refinancing.  See chart below:

PMC FHA MIP MatrixPMC FHA MIP Matrix

Email us your loan scenario at info@pmccanhelp.com or before you get a Hard Money Loan, give us a call at 800-385-3657.

Visit Our Website: http://www.pmccanhelp.com/

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