October 6, 2022 | Sexton Real Estate Group
PMI insurance, also called private mortgage insurance, is a type of mortgage insurance that you may be required to buy if you have a conventional loan. PMI insures the lender in case you default on your loan and the home goes into foreclosure.
If you’re wondering whether you need PMI insurance or how to get rid of it once you have it, here’s what you need to know.
What Is PMI Insurance?
PMI insurance is a type of mortgage insurance that protects the lender in case you default on your home loan. PMI is usually required if you have a conventional loan and make a down payment of less than 20%.
If you do have to pay PMI, it will be an additional monthly expense added to your mortgage payment. The good news is that you can eventually get rid of PMI once you’ve built up enough equity in your home. One way to do this is by making extra monthly payments towards your principal balance. Once your loan-to-value ratio reaches 80%, you can also ask your lender to cancel your PMI.
It’s important to remember that PMI is there to protect the lender, not the borrower. So if you do default on your loan, the lender will still foreclose on your home and you’ll lose any equity you’ve built up. However, PMI can give borrowers some peace of mind knowing that their lender is protected in case of default.
How Does PMI Insurance Work?
PMI insurance protects the lender in case you default on your home loan. If you have a conventional loan and make a down payment of less than 20%, you’ll likely be required to pay PMI. PMI is an additional monthly expense added to your mortgage payment.
You can eventually get rid of PMI once you’ve built up enough equity in your home. One way to do this is by making extra monthly payments towards your principal balance. Once your loan-to-value ratio reaches 80%, you can also ask your lender to cancel your PMI.
It’s important to remember that PMI is there to protect the lender, not the borrower. So if you do default on your loan, the lender will still foreclose on your home and you’ll lose any equity you’ve built up. However, PMI can give borrowers some peace of mind knowing that their lender is protected in case of default.
What Are The Benefits Of PMI Insurance?
PMI insurance gives borrowers peace of mind knowing that their lender is protected in case of default. PMI can also help borrowers with a small down payment get into a home sooner than they might be able to without it.
Of course, there are also some drawbacks to PMI insurance. Because it’s an additional monthly expense, it can make owning a home more expensive. PMI also does not protect the borrower if they default on their loan.
Still, PMI can be a helpful tool for borrowers who are looking to buy a home with a small down payment. It’s important to remember, though, that PMI is there to protect the lender – not the borrower. So if you do default on your loan, the lender will still foreclose on your home and you’ll lose any equity you’ve built up.
How Much Does PMI Insurance Cost?
The cost of PMI insurance varies depending on several factors, including the size of your down payment, the type of loan you have, and the length of your loan. Generally speaking, PMI insurance can range from 0.5% to 1% of the total loan amount.
For example, if you’re taking out a $200,000 loan with a 10% down payment, your PMI insurance would likely be about $1,500 per year or $125 per month. The good news is that PMI insurance is typically tax-deductible.
Of course, the best way to avoid PMI insurance is to make a down payment of 20% or more. If you can do this, you won’t be required to pay PMI and you’ll save money in the long run.
When Does PMI Insurance Go Away?
PMI insurance is required if you have a conventional loan and make a down payment of less than 20%. But there are ways to get rid of PMI once you’ve built up enough equity in your home.
One way to do this is by making extra monthly payments towards your principal balance. Once your loan-to-value ratio reaches 80%, you can also ask your lender to cancel your PMI.
It’s important to remember that PMI is there to protect the lender, not the borrower. So if you do default on your loan, the lender will still foreclose on your home and you’ll lose any equity you’ve built up. However, PMI can give borrowers some peace of mind knowing that their lender is protected in case of default.
PMI insurance can be a great way to protect your family’s future, but it’s important to understand all the basics before you decide if it’s right for you. We hope this article has helped give you a better understanding of what PMI is and how it works. If you have any questions or would like more information, please don’t hesitate to call us today. We would be happy to help!
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