What is PMI?

Have you ever laid awake at night wondering what is Private Mortgage Insurance, or PMI?

Benefits of PMI

Don’t confuse Private Mortgage Insurance with homeowners insurance, which insures the actual property in case of a loss. PMI protects the lender when there is less than 20 percent equity and the borrower defaults on a conventional loan. If you were to fall behind on your loan payments, PMI only protects the lender. This type of insurance is a way of getting into a home when you don’t have a 20 percent down payment or that amount of equity when refinancing.

The amount of your monthly premium is based on credit score, percentage of down payment and your loan amount. The higher your score and down payment, the lower the PMI rate. According to zillow.com, monthly premiums can typically range from $30 – $70 per month for every $100,000 borrowed.

Federal Housing Administration Loans have a similar type of insurance called MIP which stands for Mortgage Insurance Premium. The difference between MIP and PMI is that there is an up-front charge and a monthly charge for the life of the loan.

You have options

PMI will automatically terminate when the balance of your home loan has reached 78 percent of the original value of the property. You may have the right to have it cancelled sooner if certain conditions are met. To find out your options, discuss this with your lender prior to, or at, closing so you’re clear on the options.

Keep in mind that not all lenders and loan programs require PMI. Some lenders offer portfolio options that accept less money down and will waive PMI. Be sure to do your research! SouthPoint has a wonderful First Time Home Buyer Program which not only has reduced closing costs, but also waives PMI when you have 10 percent or more down.

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Shelly Heiderscheidt

Loan Service Representative - Real Estate | NMLS #641330