What is Private Mortgage insurance?
If the relationship of your mortgage to the value of your property is greater than 89.9% for loan amounts of $417,000 or below, or 80.0% for loan amounts above $417,000, you will be required to purchase insurance provided by a private mortgage insurance company. This insurance is used to protect the lender in the event you default on the mortgage.
Mortgage insurance is a type of insurance that helps protect lenders against losses due to foreclosure. This protection is provided by private mortgage insurance companies, such as PMI Mortgage Insurance Co., and allows lenders to accept lower down payments than would normally be allowed. Mortgage insurance also enables lenders to grant loans that would otherwise be considered too risky to be purchased by third party investors like the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC). The ability to sell loans to these investors is critical to maintaining mortgage market liquidity, which in turn, allows lenders to continue originating new loans.
Private mortgage insurance (PMI) policies are designed to reimburse a mortgage lender up to a certain amount if you default on your loan and the foreclosure sale is less than the amount you own the lender — that is, the amount of your mortgage loan plus the costs of the foreclosure sale. Most lenders require PMI on loans where the borrower makes a down payment of less than 20%. Premiums are usually paid monthly and typically cost less than one-half of one percent of the mortgage loan. With the exception of some government and older loans, you can drop PMI once your equity in the house reaches 22% and you’ve made timely mortgage payments. Ask your lender for details on the cost of PMI and requirements for canceling it. Another source of down payment money is a loan against your 401(k) plan. Ask your employer or plan administrator if your plan allows for loans. If it does, the maximum loan amount under the law is the one-half of your interest in the plan or $50,000, whichever is less. O
Private Mortgage Insurance, or PMI, gives the lender protection if the homeowner should default on the loan. The mortgage company charges insurance if the down payment is less than 20 percent of the sale price or appraised value. PMI usually can be eliminated once the principal balance of the mortgage reaches 80 percent of the sale price or appraised value, which is known as the loan-to-value (LTV) ratio.
Mortgage insurance is a type of guaranty 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.
