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.
