Saving on Private Mortgage Insurance
Saving on private mortgage insurance
Private mortgage insurance or PMI allows you to buy a home of your own home even if you are unable to make the required down payment. Generally, you are expected to pay more than 20% of your property value as down payment. PMI extends protection to your lender if you fail to make the required down payment. The private mortgage insurance payment is added to your monthly mortgage payments.
Earlier, lenders were not required to inform you if you no longer had to make payments for PMI. This caused a lot of discomfort for homeowners as they continued paying the PMI even if they were not required to. With the introduction of Homeowners Protection Act of 1998 that came into force in the year 1999, lenders will automatically terminate your private mortgage insurance payments on home mortgages. However, the same doesn’t apply to all home mortgages. The automatic termination of PMI applies to home mortgages taken out after July 29 1999 and once your property has 22% equity in it. In case you are regular with your mortgage payments, your PMI payments get terminated when your property has 20% equity in your property.
Exceptions to PMI cancellation
PMI on your home mortgage will not be canceled under the following circumstances-
- If your home mortgage loan falls in the “high risk” category
- In case you have not been regular with payments in the last one year prior to the cancellation of your private mortgage insurance.
- Your PMI fails to get terminated if your property has liens on it.
Cost of private mortgage insurance (PMI)
If you are taking out a mortgage loan of USD$10,000 and USD$5,000 is the down payment you are making, cost of private mortgage insurance will be between USD$40 and USD$45 every month. If you are taking out a mortgage of a higher amount, the amount you have to shell out as PMI will be even more. So, the sooner you qualify for the automatic termination, the better it is. It will also enable you to save your hard earned money. In order to keep track of growing equity in your property, get regular updates on the principal amount.
About the author: Jessica Bennet is one of the financial writers associated with the Mortgagefit Community. With her in-depth knowledge and vast experience, she has had a profound impact through writing and advising on all mortgage issues such as loan modification, reverse mortgage and foreclosures and has presented useful tips for the same. Her remarkable guidance and support has improved the community into a global hub for the mortgage related situations. She is highly appreciated by the forum moderators and other authors of our community.
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