If you make down payment of at least 20%, there is no need of paying private mortgage insurance. If you have any mortgage continuing with PMI, it can be automatically canceled after recovering 20% of your loan amount.
As there are many loan schemes today that makes provides the service with no down-payment, so there are only 10% users which make down-payment last year. This is the reason that makes people to PMI.
As a result of today’s programs, the National Association of REALTORS® reports that last year’s typical home buyer made a down payment of just ten percent, financing 90% of the sales price with a mortgage.
PMI is an additional amount of the mortgage installments, and it has to pay until your mortgage equity reaches to 20%.
We are not saying PMI’s are dreadful as it helps people to purchase the house in the US with low or down-payment.
Private Mortgage Insurance (PMI)
Private Mortgage Insurance (PMI) is simply an insurance policy that is paid by the loan consumer, or you can say home buyer, and which is a security to your lender in case you fail to pay the loan installments in future.
When home equity percentage is less than 20%, PMI is required. This means that PMI is essential for acquiring both money loans and refinance loan.
The fact behind the name of this policy is it is acquired by private companies, so it is called Private Mortgage Insurance.
PMI has the same criteria as the other insurance policies; the amount of PMI is decided based on the risk associated with the lender. It depends on the amount of down payment you make, lower the down payment higher will be the cost of PMI. These installments are calculated and divided into the monthly installments and included with your monthly mortgage installments. There are continuously change in PMI criteria based on time, place, etc.
Cancellation of PMI
It is very easy to cancel the PMI scheme. It is automatically canceled once your 20% loan is paid. Money lenders must keep you updated about options for canceling PMI’s.
According to the Homeowners Protection Act 1998, the homeowners are allowed to request PMI cancellation once their home equity reaches 80%. You must contact the lender and ask your query regarding PMI cancellation procedure.
Tips for avoiding PMI Installments
- The best thing is to make 20% down payment so that PMI scheme does not apply.
- People who have the military background for that VA loan that does not charge any mortgage insurance.
- You can also use “piggyback financing”, in this you have to make a down payment of 10%.
- Keep yourself updated about current Mortgage Rates