About Private Mortgage Insurance
PMI for short
Private Mortgage Insurance (PMI) is required for home buyers who cannot raise at least 20% or more for the home purchase. Lenders will make loans at less than 20% down provided that the home buyer gets Private Mortgage Insurance.
Below are two (2) quick notes about PMI:
What About PMI
Private Mortgage Insurance (PMI) is required for all home buyers who cannot raise at least 20% or more for the home purchase. Lenders will make loans at lower down payments provided that the home buyer gets Private Mortgage Insurance (PMI).
You need to check with your lender to estimate your cost percentage for PMI if your down payment is less than 20%. Nationally, the average annual percentage is around 0.005 of your loan balance.
If PMI is required as part of your loan, the initial annual premium will be included in your closing costs. Your subsequent premiums (1/12th of your annual premium) will be included in your monthly mortgage payments and deposited in your escrow account.
If the value of your home increases to 22% of the original property value, or if you make enough payments on your mortgage to reduce your balance to 78% of the appraised value, the lender must automatically stop PMI. However, you can request cancellation when the loan-to-value ratio drops to 80%. So run the numbers:
- Step 1: Get Your Loan Balance
analyze your current loan payment schedule. Get your mortgage loan payment history from your lender and insert the information into your desktop worksheet:
download FREE to your desktop this loan amortization schedule worksheet (Excel spread sheet)
- Step 2: Estimate Your Home Value
start by checking home values within your neighborhood:
link to our home valuation section
- Step 3: Calculate Your LTV
if the current mortgage loan balance (divided by) the estimated value of your home is less than 80%LTV, you may be able to cancel your PMI.
Appraised home value: $150,000
Amount of Mortgage: $115,000
LTV: 76.66% ($115,000 / $150,000)
In this example, the homeowner can request the lender to cancel their PMI.