PMI Mortgage Insurance Rules

PMI Mortgage Insurance

Rules of Private Mortgage Insurance Regulated

Private Mortgage Insurance (PMI) is insurance that you are required to purchase when you mortgage a home for more than 80% of the value of the property. You generally will not have to carry this insurance if you put at least 20% of the value of the home in a down payment. The premium you are charged for this insurance will be added to your monthly mortgage payment and you will not be the one who receives any benefit for these payments. The lender is the benefactor of the insurance when or if you default on your loan. In that case the insurance will pay off the principal balance of the loan that remains unpaid.

Mortgage Insurance

First thing is You are require to understand the rules that govern to your PMI and your own mortgage loan. PMI MOrtgage insurance  allow most people in participating of home ownership by giving guarantee for any reason if they cannot make the payments, your loan will be paid by the proceeds of your insurance. This data is from the Mortgage Insurance Companies of America.

There is a cost associated with this insurance that is above what you will pay toward your principal, the interest, the taxes and the hazard insurance. Like these other fees, this insurance premium simply becomes a part of your monthly mortgage payment. It is held in escrow until the annual premium comes due. At this time the company is paid from the amount in your escrow. The primary cost of the insurance is set based on the amount of the loan and not on the risk associated with the borrowers. The cost will be around 1% of the total loan amount.

PMI was set up by any of your lender, so you could choose whether the option of the payment  by a single annual premium or you prefer the monthly payments figured into any of your mortgage payment. The amounts of the payments will not change over time. If you put more down on your house you will pay less in premiums or will not be required to carry the coverage.

Your down payment amount will determine whether you are required to carry this insurance. If you borrow 80% or more of the total price of your house, you will have to carry insurance. If you pay down less than 20% you are a larger risk. According to the Mortgage Foundation if you put less than 20% into your home when you purchase it, you are more likely to not make the payments and default on the note. This is one of the primary reasons that lenders require the insurance. They want to protect their investment in case you default on the loan.

If you are purchasing PMI, your lender will consider give you a loan with as little as 5-10% down and you will require to keep the coverage until you able to pay at least 20% of the value of the home. For some cases you can deduct PMI on your incoming tax return. You should not had an adjusted gross income more than $100,000 and also that your loan shall have been started after January 1, 2007 and before December 31, 2010. In case you buy the PMI from your own lender you might probably have to pay it much more. When you carry PMI your closing costs will be lower and so will your monthly payments because you should receive a lower rate of interest from the lender for carrying the insurance. Make sure you are aware of the terms of your specific policy. You do not want a policy that will penalize you for cancellation.

You can cancel your PMI when you have met the lender's requirements to do so. Most of lenders are allowing any cancellation when the 20% equity at your house has reached. Your lender suppose to inform you this information when you try to close on the loan and each year until your PMI is already cancelled. You can build your equity faster by making additional payments to your loan. You can obtain an appraisal that shows your home has increased in value since you purchased it. If you remodel your home and increase the value keep the receipts or get an appraisal.

Federal law states that there are conditions for PMI cancellation. For loans made on or after July 29, 1999, your insurance will cancel automatically. When you have reached the threshold of 78% loan to value ratio your lender must cancel your insurance. If you closed prior to this date you can apply for cancellation with the lender when you have reached the same threshold. You suppose to have a white list credit history in order to setup an application for cancellation at the 80% threshold. You can ask your mortgage lender for more information you need to apply cancellation.

If you paid the total amount of premium up front at close you may qualify for a refund. If you pay annually and your premium is cancelled prior to using the full year of coverage you may also be entitled to a refund. Check with the lender to see if you have a refund.