Private Mortgage Insurance: Top 10 Things You Need To Know
1. Private mortgage insurance is normally required if your mortgage loan is for more than eighty percent of the value of your home. This insurance is typically required if you are buying a home and do not have at least a twenty percent down payment.
2. Mortgage insurance companies do not cover the entire mortgage balance, only the initial twenty percent of the home value. If you default on your loan after putting ten percent down, and you have paid another three percent in payments over time, then your insurer would have to make up the seven percent difference.
3. This type of insurance can cost you up to seven hundred and fifty dollars per year for each one hundred thousand dollars you owe on your mortgage. For a two hundred thousand dollar mortgage you will usually pay between one thousand and fifteen hundred dollars per year in premiums.
4. The rates charged for private mortgage insurance can vary, so it is a good idea to comparison shop and carefully evaluate each company offering this type of insurance. In some cases you could save hundreds of dollars just by choosing a different mortgage insurance provider.
5. Having PMI mortgage insurance offers your mortgage lender a guarantee that twenty percent of the loan will be covered no matter what, even if you default shortly after the purchase. Because low down payment loans have become more common over the last few decades this insurance has become required by many lenders.
6. The premiums for this type of insurance are paid monthly, and the property owner is the one who receives the bill. The yearly premium amount is divided by twelve, and this is the monthly payment amount that you will owe each month.
7. Private mortgage insurance is only required until the mortgage amount is eighty percent of the home value, and then this insurance is typically canceled. This policy may be automatically canceled when you reach the required percentage or you may request that it is canceled in writing once you only owe the eighty percent.
8. Many home buyers attempt to take out second home mortgages instead of purchasing the required insurance, but in many cases this step can cost more than just paying the insurance premiums.
9. You will only be required to have private mortgage insurance if your down payment is less than twenty percent. If you make a down payment that is equal to or more than twenty percent of the value of your home then you will not need this insurance.
10. Whether your mortgage is a fixed rate home equity loan or one that has an adjustable rate will not have any impact on whether or not you need this type of insurance, but it can affect how long you will need to carry the insurance for because an adjustable rate can increase your interest costs and lower the principal amount applied.