Kingston Mortgage Explains Private Mortgage Insurance (PMI)
Private mortgage insurance is one of the topics
most asked about in the inquiries made to Kingston Mortgage. It seems that many
do not have a clear picture of what private mortgage insurance is or how it
works. In short, private mortgage insurance acts as a security net should the
borrower ever fail to be able to fulfill their monthly payments. For more information on what private mortgage insurance
is and how it works, please read on.
What is Private Mortgage Insurance?
Private Mortgage Insurance, also known as PMI, is an insurance that protects the lender should the borrower ever fail to meet their monthly payments. As such, the borrower is responsible for paying the premium on the private mortgage insurance.
What is the Purpose of Private Mortgage Insurance?
If the borrower puts a down payment that is less than 20%, the mortgage lender will have to put more money into the loan. Private mortgage insurance (PMI) is essentially a security net for the borrower should they ever fail to meet their monthly payments. Most borrowers accept the cost of private mortgage insurance payments to be able to purchase a more luxurious home.
Can I avoid PMI? If I Get a PMI, can I Remove it Later?
The only way to avoid private mortgage insurance from the start is to by putting a down payment of 20%. If you choose to purposefully have a smaller down payment, or if you want to purchase a more luxurious home, you will have PMI payments. Once a borrower reaches 22% equity in their home, PMI payments will be removed automatically.
It is possible to remove these payments at an earlier stage, but only after meeting certain requirements. The borrower will need to be current on their payments while maintaining a good payment history. The borrower must have reached 20% equity in their home, meaning they have paid of 20% of their loan. Once you have both these conditions, you can submit a written request to your mortgage lender to drop your private mortgage insurance payments. However, do keep in mind that this process does take some time, because mortgage lenders typically reappraise the home to check that the borrower has paid off 20% of the home’s value. Another method of removing PMI is through refinancing, which is discussed in more detail below.
How Does Refinancing Affect My PMI?
In general, one should be well informed of their loan and their contract before deciding to move forward with refinancing. Using refinancing to lower cost and remove private mortgage insurance only works if your home’s value has increased substantially since the last time you received a mortgage. The key to removing PMI through refinancing is for you to owe less than 80% of your loan after refinancing is complete.
How Much is the Private Mortgage Insurance Payment?
Cost of a private mortgage insurance payment is based off the loan amount, how much the borrower puts for a down payment, and the borrower’s credit score.
The most common payment method for private mortgage insurance is through a monthly premium. Other options may include an up-front premium payment or a combination of an up-front premium payment and a monthly premium.