What is Private Mortgage
Insurance or PMI?
Private
mortgage insurance (PMI) protects the lender from loss due to payment
default by the borrower. It is used with conventional financing only.
It may be paid in a lump sum at the time of settlement or in monthly
installments as part of the mortgage payment. PMI is typically required
when the amount of your loan exceeds 80% of the property's value. This
type of insurance should not be confused with mortgage life, credit life,
or disability insurance, which is designed to pay off a mortgage in the
event of the borrower's disability or
death.
The
mortgage insurance premium depends on the loan-to-value ratio. It is
3-tiered: 80.01%-85.00%, 85.01% to 90.00% and 90.01% to 95.00%, each step
costing more. The mortgage insurance also depends on the loan amount and
the type of loan. Adjustable rate loans have higher premiums than
fixed rate loans. You can usually choose between monthly and annual
premiums. The PMI is given by a different party than the lender. Your
lender will send a copy of your loan application package to the PMI
Company for their approval. Among the loan documents you will sign at
closing is a PMI agreement. Your lender will collect the PMI payment along
with your principal and interest.
PMI
policies usually have "escape" clauses describing under what
conditions you can stop paying PMI. You must read your PMI policy to
determine this.
Landmark Mortgage
specializes in assisting individuals with obtaining home loans. We can advise you on the best
approach and help you get the house of your dreams!
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