Private Mortgage Insurance : What is Private mortgage insurance ?

PMI Mortgage Insurance

PMI Morgage Insurance

What Is Private Mortgage Insurance ?

Private Mortgage Insurance or commonly known as PMI, insurance that lenders require the borrower to take if they borrow more than 80% of the value of their new home. Several decades ago, most of people not even thinking of buying a house without a 20% down. However, times do changes. Many people come to the table with a 3% to 10% on cash advances. Increasingly lenders provide to borrowers on home value, the greater the risk there is to the lender.  

To overcome this, many lenders require borrowers to carry PMI Mortgage insurance in addition to making their mortgage payments. This insurance gives lenders protection in case the borrower defaults. In other words, this is an insurance for mortgagor in case where a mortgagor is not able to repay the loan and the lender cannot recover costs after the seizure and sale of property. 

If you want to obtain a mortgage on a home worth $ 100,000, to avoid paying private mortgage insurance, you need a down payment of 20% or $ 20,000. For some people, it is a very high figure. This means they may have to delay getting home for several years or they take the risk and pay PMI. In the past, many avoid PMI by taking out a second mortgage to cover the gap between the actual and the additional cash advance rate of 20%. However, in 2007, PMI could deduct taxes. This what makes PMI become more attractive option.

So, How is banks calculate the amount of PMI that you pay every month? The Calculation explaination is quiet difficult. It requires to take the amount of your mortgage and divide it by a certain numbers associated with the amount that you put it down. If you take 5% down, you can expect to pay around $ 65 per $ 100,000 of mortgage you have on you. So for a $ 200,000 mortgage, you can expect to pay about $ 130 per month for PMI. The amount can vary and change during your loan. As you build equity in your home, the number fell.

One thing you need to watch when it comes to PMI is equity. If your house appreciates in which the amount of your mortgage is less than 78% of the current value of your home, you might not have to pay private mortgage insurance again. You don not need to have your mortgage and your loan cannot be FHA or VA loans. High-risk loans may require bringing PMI for a long time. But, you can use the PMI if you find your dream home, but do not have the 20% down payment.

After you read this posting we hoping that it would get you more information about Private Mortgage Insurance and you might ask for more question. When the best time to apply for a fixed rate mortgage? What is an adjustable rate mortgage based on? Do I choose for a 15 or 30 year mortgage? What are the advantages of an FHA loan? And Do I have to use a broker or a bank?

More Information About PMI Mortgage Insurance, wikipedia