What is PMI? Do I need to take a pill?
Private Mortgage Insurance
Actually, you don’t need to take a pill. You see, PMI stands for Private Mortgage Insurance. PMI is insurance policy which protects the lender if you don’t pay your mortgage.
It’s paid monthly and is included in your mortgage payment.In fact, it’s required for a conventional loan that has a down payment of less than 20%.
Will you need to pay PMI forever?
No you won’t, because once the equity in your home reaches 20% of the value, you can cancel your PMI. As a result, you’ll stop making that payment as part of your mortgage payment.
This is insurance that you have the privilege of paying. And who gets the benefit of this insurance? The lender of your mortgage is the one who will receive the payment if it ever needs to be used.
What Does PMI cost?
The cost of PMI varies. Tow factors come into play. First is your loan-to-value ratio. If you put down 5% of the purchase price, you’ll pay more than if you put down 15%. And the second factor is your credit score. You can expect to pay somewhere between $30 and $70 per month for every $100,000 that is borrowed.
It’s important to know about PMI because the average down payment for all buyers last year was 10%. In addition, for first time buyers the average was 6%. As a result, a large number of buyers were required to pay PMI . However, it didn’t stop them from going ahead and purchasing their dream homes.