How Are Private Mortgage Insurance Rules Regulated?
Private Mortgage Insurance (PMI) is insurance that you are required to purchase when you mortgage a home for more than 80% of the value of the property.
You generally will not have to carry this insurance if you put at least 20% of the value of the home in a down payment.
The premium you are charged for this insurance will be added to your monthly mortgage payment and you will not be the one who receives any benefit for these payments.
The lender is the benefactor of the insurance when or if you default on your loan.
In that case the insurance will pay off the principal balance of the loan that remains unpaid.
You need to understand the rules that govern PMI and your mortgage loan.
PMI has allowed more people to participate in home ownership by guaranteeing that if they cannot make the payments for what ever reason, the debt will be paid by the proceeds of the insurance.
This data is from the Mortgage Insurance Companies of America.
There is a cost associated with this insurance that is above what you will pay toward your principal, the interest, the taxes and the hazard insurance.
Like these other fees, this insurance premium simply becomes a part of your monthly mortgage payment.
It is held in escrow until the annual premium comes due.
At this time the company is paid from the amount in your escrow.
The primary cost of the insurance is set based on the amount of the loan and not on the risk associated with the borrowers.
The cost is around 1% of the total loan amount.
PMI is set up by your lender and you can choose the payment option of a single annual premium or monthly payments figured into your monthly mortgage payment.
The payments amounts do not change over time.
If you put more down on your house you will pay less in premiums or will not be required to carry the coverage.
Your down payment amount will determine whether you are required to carry this insurance.
If you borrow 80% or more of the total price of your house, you will have to carry insurance.
If you pay down less than 20% you are a larger risk.
According to the Mortgage Foundation if you put less than 20% into your home when you purchase it, you are more likely to not make the payments and default on the note.
This is one of the primary reasons that lenders require the insurance.
They want to protect their investment in case you default on the loan.
If you purchase PMI your lender will consider loaning you the money with as little as 5-10% down and you will be required to keep the coverage until you have paid at least 20% of the value of the home.
Sometimes you can deduct PMI on your income tax return.
You must not have an adjusted gross income greater than $100,000 and your loan must have been initiated after January 1, 2007 and before December 31, 2010.
If you buy the PMI from your lender you will probably pay more for it.
When you carry PMI your closing costs will be lower and so will your monthly payments because you should receive a lower rate of interest from the lender for carrying the insurance.
Make sure you are aware of the terms of your specific policy.
You do not want a policy that will penalize you for cancellation.
You can cancel your PMI when you have met the lender's requirements to do so.
Most lenders will allow cancellation when the 20% equity in the home is reached.
Your lender is required to tell you this information when you close on the loan and every year until your PMI is cancelled.
You can build your equity faster by making additional payments to your loan.
You can obtain an appraisal that shows your home has increased in value since you purchased it.
If you remodel your home and increase the value keep the receipts or get an appraisal.
According to the Mortgage Insurance Companies of America, "90% of borrowers cancel their (PMI) within 60 months (of owning their home).
" Federal law states that there are conditions for PMI cancellation.
For loans made on or after July 29, 1999, your insurance will cancel automatically.
When you have reached the threshold of 78% loan to value ratio your lender must cancel your insurance.
If you closed prior to this date you can apply for cancellation with the lender when you have reached the same threshold.
You must have a good credit history in order to apply for cancellation at the 80% threshold.
Ask you mortgage lender to give you the information you need to apply for cancellation.
If you paid the total amount of premium up front at close you may qualify for a refund.
If you pay annually and your premium is cancelled prior to using the full year of coverage you may also be entitled to a refund.
Check with the lender to see if you have a refund.
You generally will not have to carry this insurance if you put at least 20% of the value of the home in a down payment.
The premium you are charged for this insurance will be added to your monthly mortgage payment and you will not be the one who receives any benefit for these payments.
The lender is the benefactor of the insurance when or if you default on your loan.
In that case the insurance will pay off the principal balance of the loan that remains unpaid.
You need to understand the rules that govern PMI and your mortgage loan.
PMI has allowed more people to participate in home ownership by guaranteeing that if they cannot make the payments for what ever reason, the debt will be paid by the proceeds of the insurance.
This data is from the Mortgage Insurance Companies of America.
There is a cost associated with this insurance that is above what you will pay toward your principal, the interest, the taxes and the hazard insurance.
Like these other fees, this insurance premium simply becomes a part of your monthly mortgage payment.
It is held in escrow until the annual premium comes due.
At this time the company is paid from the amount in your escrow.
The primary cost of the insurance is set based on the amount of the loan and not on the risk associated with the borrowers.
The cost is around 1% of the total loan amount.
PMI is set up by your lender and you can choose the payment option of a single annual premium or monthly payments figured into your monthly mortgage payment.
The payments amounts do not change over time.
If you put more down on your house you will pay less in premiums or will not be required to carry the coverage.
Your down payment amount will determine whether you are required to carry this insurance.
If you borrow 80% or more of the total price of your house, you will have to carry insurance.
If you pay down less than 20% you are a larger risk.
According to the Mortgage Foundation if you put less than 20% into your home when you purchase it, you are more likely to not make the payments and default on the note.
This is one of the primary reasons that lenders require the insurance.
They want to protect their investment in case you default on the loan.
If you purchase PMI your lender will consider loaning you the money with as little as 5-10% down and you will be required to keep the coverage until you have paid at least 20% of the value of the home.
Sometimes you can deduct PMI on your income tax return.
You must not have an adjusted gross income greater than $100,000 and your loan must have been initiated after January 1, 2007 and before December 31, 2010.
If you buy the PMI from your lender you will probably pay more for it.
When you carry PMI your closing costs will be lower and so will your monthly payments because you should receive a lower rate of interest from the lender for carrying the insurance.
Make sure you are aware of the terms of your specific policy.
You do not want a policy that will penalize you for cancellation.
You can cancel your PMI when you have met the lender's requirements to do so.
Most lenders will allow cancellation when the 20% equity in the home is reached.
Your lender is required to tell you this information when you close on the loan and every year until your PMI is cancelled.
You can build your equity faster by making additional payments to your loan.
You can obtain an appraisal that shows your home has increased in value since you purchased it.
If you remodel your home and increase the value keep the receipts or get an appraisal.
According to the Mortgage Insurance Companies of America, "90% of borrowers cancel their (PMI) within 60 months (of owning their home).
" Federal law states that there are conditions for PMI cancellation.
For loans made on or after July 29, 1999, your insurance will cancel automatically.
When you have reached the threshold of 78% loan to value ratio your lender must cancel your insurance.
If you closed prior to this date you can apply for cancellation with the lender when you have reached the same threshold.
You must have a good credit history in order to apply for cancellation at the 80% threshold.
Ask you mortgage lender to give you the information you need to apply for cancellation.
If you paid the total amount of premium up front at close you may qualify for a refund.
If you pay annually and your premium is cancelled prior to using the full year of coverage you may also be entitled to a refund.
Check with the lender to see if you have a refund.
