Did you know you may have to pay private mortgage insurance along with your mortgage payments?
Private Mortgage Insurance, or PMI, is one of the fees you may encounter when buying a home. While most homebuyers know about mortgage origination fees and down payments, not many people know what PMI is. So, let’s take a look at this little-known fee and how much you may end up paying.
What is Private Mortgage Insurance?
Private mortgage insurance is required when you make a down payment that is less than 20 percent of the mortgage. This insurance is required by the lender in order to protect them from losing money if the property goes into foreclosure. PMI is also used when a person refinances their home when their mortgage is less than 20 percent of the equity. But how is this insurance calculated? Read on to find out!
How is PMI Calculated?
PMI fees may vary depending on the size of the down payment and credit score. It typically is around 0.3 percent to 1.5 percent of the original loan amount per year. The PMI is also calculated based on a rate per year so you will know ahead of time what you will be paying per year in insurance. The PMI fees are paid monthly along with your regular monthly payments. Borrowers have the option of paying the insurance in a lump sum or can pay it throughout the year.
Can You Get Rid of PMI?
In general, PMI can be canceled once the loan’s principal balance has dropped to about 78-80 percent of the home’s original value. This may take years to achieve, but once it is at that level, your PMI will be canceled. Make sure you are keeping track of the amount you have paid off so you can ask your lender to discontinue the mortgage insurance premiums. You can also avoid PMI all together with a few options. The first option is to make a 20 percent or more down payment on your house. The second is to borrow from the Department of Veterans Affairs. This option is only open to past or present members of the military. If you don’t want to join the military and don’t have access to 20 percent of the loan, you aren’t out of luck completely. Many lenders offer the option of Lender-Paid Mortgage Insurance (LPMI), which is similar to a regular PMI, but the lender will pay it on your behalf. With this option, your mortgage rate may increase up to 75 basis points, or 0.75 percent. Unfortunately, the LPMI does not cancel like the Lender-Paid Mortgage Insurance, so be sure this is an option you would like to go with before signing up.
A PMI is required by most financial institutions but could be as little as $60.00 a month depending on the size of your mortgage. For more information on your PMI and other closing costs, see your Clagett Enterprises real estate agent today.
Private Mortgage Insurance and Clagett Enterprises
If you’re looking for the perfect realtor for your family or property management company for your portfolio of properties, you can rely on Clagett Enterprises. Clagett Enterprises is a full-service real estate company with almost 30 years of experience in the Frederick and Western Maryland area. For assistant selling your home and getting the best possible price, contact us online or give us a call at 301-665-6009. To meet our team and see some of our beautiful homes, follow us on Facebook, Twitter, Pinterest, and Google+.