Private Mortgage Insurance (PMI) is a form of insurance that homebuyers may need to purchase to obtain a mortgage loan. PMI is also referred to as lenders mortgage insurance.
When buying a home, if your down payment is less than 20% of the price of the home, the lender may require you to get a mortgage insurance. The mortgage insurance policy is designed to protect the lender in case you default in the mortgage payments. The lender becomes the beneficiary of the Private Mortgage Insurance. There are two types of mortgage insurance:
- Government Insures: Mortgage that is bought from the government. The most common government agency for PMI is Federal Housing Agency (FHA).
- Private Insurers: Mortgage insurance that is bought from private sectors, this is called Private Mortgage Insurance.
Who Is Required to Have Private Mortgage Insurance?
On private mortgage loans, if your down payment is less than 20%, the lender will require the homebuyer to obtain mortgage insurers to protect the lender from default. On government loans, mortgage insurance is usually required even if the down payment is greater than 20%.
How Much Does This Insurance Cost?
PMI would usually cost around $50 – $200 a month depending on the balance of your loans and your PMI rate. The PMI payments are usually made along with your mortgage premiums. The downfall of PMI is that it raises your mortgage payments and unlike traditional interest on a home mortgage in which it is tax deductible, PMI payments are not tax deductible. If you want to avoid PMI payments, you must place a down payment of more than 20%. PMI payments can also be canceled after the principal amount of the loan has reached 80% of the homes current sale value.
How Can I Cancel My Private Mortgage Insurance?
You need to contact your lender or mortgage servicers to understand if you are required to make PMI payments for the mortgage you have obtained. Many states have their own guidelines on how you can cancel or terminate PMI payments.
Contact your lender or mortgage services and ask if there are any alternative programs for paying PMI or avoid making PMI payments altogether.
Seeking Legal Help
Obtaining a mortgage can be a complicated and stressful process. To avoid unnecessary difficulties or to resolve issues such as mortgage loan fraud or loan modification, you should consider contacting an experienced real estate lawyer.