What is PMI? Can I get rid of the PMI on my loan?
PMI or Private Mortgage Insurance is normally required when
you buy a house with less than 20% down. Mortgage insurance is a type
of guarantee that helps protect lenders against the costs of
foreclosure. This insurance protection is provided by private
mortgage-insurance companies. It enables lenders to accept lower down
payments than they would normally accept. In effect, mortgage insurance
provides what the equity of a higher down payment would provide to
cover a lender's losses in the unfortunate event of foreclosure.
Therefore, without mortgage insurance, you might not be able to buy a
home without a 20% down payment.
The cost of PMI increases as your down payment decreases.
Example: The cost of PMI on a 10% down payment is less than the cost of
PMI on a 5% down payment. Your PMI premium is normally added to your
monthly mortgage payment.
The decision on when to cancel the private insurance
coverage does not depend solely on the degree of your equity in the
home. The final say on terminating a private mortgage-insurance policy
is reserved jointly for the lender and any investor who may have
purchased an interest in the mortgage. However, in most cases, the
lender will allow cancellation of mortgage insurance when the loan is
paid down to 80% of the original property value. Some lenders may
require that you pay PMI for one or two years before you may apply to
remove it.
To cancel the PMI on your loan, contact your lender. In most
cases, an appraisal will be required to determine the value of your
property. You will probably also be required to pay for the cost of
this appraisal. Another way of cancelling the PMI on your loan is to
refinance and to get a new loan without PMI.
