Are you bewildered by Private Mortgage Insurance (PMI)? Buying a home can feel like you’re swimming in alphabet soup. That’s why Stearns is committed to providing educational resources – online and in person.
PMI stands for Private Mortgage Insurance.
Also called Mortgage Insurance (MI), this product is provided by a private company or through the government (depending on your loan type).* Buyers who finance their home with a conventional loan and have a down payment that’s less than 20% are required to carry mortgage insurance.
How much does it cost?
PMI rates are usually 0.20% to 1.50% of the balance of your mortgage each year. The cost varies based on the type of loan, your credit score, down payment amount and loan term. The annual amount is divided by 12 and added to your monthly payment.
Here’s the thing.
Most of us understand that the typical insurance we purchase protects us and our own interests. PMI is designed to protect the mortgage provider against losses that could be incurred if you default on the loan. This means that you’ll still need to traditional property insurance to cover the home itself. There are two main ways to look at PMI:
- You could buy a home now with less than 20% down and take advantage of today’s low interest rates, even though that will require PMI.
- Or you could continue saving toward a 20% down payment, but would potentially miss out on the current favorable loan rates, as well as delay achieving your goal of home ownership.
Bye, bye, bye to PMI!
Requirements vary based on the type of mortgage you have, but you can generally drop PMI when you have attained 20% equity in your home. When you believe you’ve reached the 80/20 mark, contact your lender and an appraisal will be ordered to verify that your home’s current value and equity meet the PMI guidelines of your mortgage.
Of course, if you have any questions, contact Stearns today. We can help you!®
* This blog provides general information for the purpose of education. Always discuss mortgage guidelines with your lender and be sure you understand the loan’s requirements before making a final decision.
- By Keisha Dunstan,
Sep 12, 2016