The requirement to get Private Mortgage Insurance (PMI) is determined by the loan type and the percentage you put down as a down payment. PMI insures the lender in the event that you default on your mortgage. Getting PMI on the mortgage increases a lender’s willingness to take this risk. PMI is beneficial to you as a home buyer because it makes it possible for you to get a home loan with less than 20% down payment.
PMI charges are most often paid monthly which are included in your mortgage payment, but there are other payment options including: annually or through a premium plan. Premiums are based on the term and amount of the loan, and are dependent upon the type of loan and the loan-to-value ratio. In most cases, once your home equity reaches 22%, your mortgage insurance and the payments for it are cancelled automatically by your lender. If you do need and qualify for PMI, your lender will choose your PMI and add it to your mortgage payments. The cost of your PMI is determined by your credit score, loan amount, terms, and down payment. If you would like a PMI estimate, click here to use this calculator. The cost of PMI will be disclosed to you as an estimate when you apply for your mortgage, and when you close the final cost (based on you keeping the loan for its entire term) will be disclosed to you at that time.
To cancel your PMI prior to reducing the principal of your loan through scheduled payments, you need to either reduce the principal of your mortgage by paying it down to below 80% of the appraised value when you bought it, or provide your lender with proof of owning at least 20% of your home. In order to do that, you’ll need to get an appraisal at your expense. Appraisals can be expensive, so it’s best to compare the cost of the appraisal to the amount of money you’ll save from cancelling your PMI early, to see which option is the best for your homeownership needs.
If you’re looking to refinance your home or need help starting the homeownership process, contact a loan officer today.