| Alex Baglioni & Team RE/MAX Partners Toll Free: 866-YOU-SOLD Ph: 954-229-0610 Fax: 800-743-1023 Offices in Fort Lauderdale, Las Olas, LightHouse Point, Plantation Pembroke Pines and Coral Springs. |
Private Mortgage Insurance, aka PMI
What You Need to Know About Private Mortgage Insurance
PMI lets you buy a house with less than 20 percent down -- in exchange for higher
payments.
Private mortgage insurance is just what the name implies: insurance that covers the lender
in case the home buyer defaults. If you put less than 20 percent down on most mortgages,
chances are your lender will require you to have private mortgage insurance, commonly
known as PMI.
Unless you have a government-insured loan, such as an FHA or VA loan, you don’t have
much choice in the matter. And the benefit of private mortgage insurance is it allows you to
buy the home you want even if you don’t have a large down payment. The lender will obtain
private mortgage insurance for you.
Paying private mortgage insurance
There are a couple of ways to handle your private mortgage insurance payment.
One popular payment method is to include private mortgage insurance as part of your
monthly mortgage payment. PMI generally costs about one-half of 1 percent of the cost of
your house, or $75 a month for an $180,000 mortgage.
Another way of paying for private mortgage insurance is to finance it when you get the
mortgage. That would generally increase your interest rate, possibly by one-half of 1
percent. Mortgage interest is likely tax-deductible while private mortgage insurance may not
be. (Consult a tax advisor about your situation.)
You can cancel PMI
You don’t have to pay PMI forever. You can ask to have it canceled after you have built up
20 percent equity in your home. This means if your home is worth $200,000, you have at
least $40,000 in equity in your home. And you don’t have to pay down your mortgage to
build equity, either. If you have made significant home improvements or your property has
appreciated significantly in value, you may be able to cancel private mortgage insurance
even earlier. The lender may require you to pay for an appraiser to establish your home’s
value in today’s market.
If you signed your mortgage on or after July 29, 1999, a federal law requires lenders to
automatically – with a few exceptions – cancel your private mortgage insurance once you
have paid 22 percent of the principal based on the original loan amount.
Lenders do have some leeway to refuse to cancel your PMI if you are not current on your
payments, if there are liens against the property or if you have an exceptional amount of
debt based on your income.
Some people avoid private mortgage insurance by getting a small home equity loan to
“piggyback” on the mortgage. The piggyback loan pays for the rest of the down payment so
the buyer is able to put 20 percent down. These loans carry a higher interest rate than the
mortgage, but the interest may be tax-deductible. A financial advisor can help you figure
out how to determine if private mortgage insurance is the best way for you to buy a home
What You Need to Know About Private Mortgage Insurance
PMI lets you buy a house with less than 20 percent down -- in exchange for higher
payments.
Private mortgage insurance is just what the name implies: insurance that covers the lender
in case the home buyer defaults. If you put less than 20 percent down on most mortgages,
chances are your lender will require you to have private mortgage insurance, commonly
known as PMI.
Unless you have a government-insured loan, such as an FHA or VA loan, you don’t have
much choice in the matter. And the benefit of private mortgage insurance is it allows you to
buy the home you want even if you don’t have a large down payment. The lender will obtain
private mortgage insurance for you.
Paying private mortgage insurance
There are a couple of ways to handle your private mortgage insurance payment.
One popular payment method is to include private mortgage insurance as part of your
monthly mortgage payment. PMI generally costs about one-half of 1 percent of the cost of
your house, or $75 a month for an $180,000 mortgage.
Another way of paying for private mortgage insurance is to finance it when you get the
mortgage. That would generally increase your interest rate, possibly by one-half of 1
percent. Mortgage interest is likely tax-deductible while private mortgage insurance may not
be. (Consult a tax advisor about your situation.)
You can cancel PMI
You don’t have to pay PMI forever. You can ask to have it canceled after you have built up
20 percent equity in your home. This means if your home is worth $200,000, you have at
least $40,000 in equity in your home. And you don’t have to pay down your mortgage to
build equity, either. If you have made significant home improvements or your property has
appreciated significantly in value, you may be able to cancel private mortgage insurance
even earlier. The lender may require you to pay for an appraiser to establish your home’s
value in today’s market.
If you signed your mortgage on or after July 29, 1999, a federal law requires lenders to
automatically – with a few exceptions – cancel your private mortgage insurance once you
have paid 22 percent of the principal based on the original loan amount.
Lenders do have some leeway to refuse to cancel your PMI if you are not current on your
payments, if there are liens against the property or if you have an exceptional amount of
debt based on your income.
Some people avoid private mortgage insurance by getting a small home equity loan to
“piggyback” on the mortgage. The piggyback loan pays for the rest of the down payment so
the buyer is able to put 20 percent down. These loans carry a higher interest rate than the
mortgage, but the interest may be tax-deductible. A financial advisor can help you figure
out how to determine if private mortgage insurance is the best way for you to buy a home
Alex Baglioni, remax partners, agent, realtor , real estate agent, Mortgage calculator in Broward County, Mortgage
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