Private mortgage insurance, or PMI, is imposed on conventional mortgage borrowers who place less than 20 percent down on a home purchase. Mortgage insurance is also a requirement for borrowers who obtain a mortgage through a government agency, such as the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA), though it is not privately-issued, according to Consumer Reports.
The term “private mortgage insurance” can be misleading. PMI protects the lender, not the borrower, in the event the borrower misses a payment.
Consumer Reports estimates PMI premiums cost 0.5 to 0.6 percent of the original mortgage amount, but the percentage can increase or decrease based on factors such as credit score and down payment amount. In most instances, the cost is applied to the monthly mortgage payment.
Unlike homeowners insurance, borrowers subject to PMI cannot shop for an insurer; they can, however, request that their lender find the lowest premium possible.
Applicable borrowers must retain PMI until their equity reaches 20 percent of their home’s value—though often, this is achieved sooner through appreciation, not amortization. Consumer Reports advises borrowers with PMI notify their lender when nearing 20 percent equity; lenders are only legally required to cease PMI when equity reaches 22 percent.
To learn more about private mortgage insurance, or to discuss financing options, contact me today!
Source: Consumer Reports