Glossary:
Get help understanding the terms.
What is PMI on a Mortgage? 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.
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