What is PMI, or Private Mortgage Insurance?
PMI, or Private Mortgage Insurance, is insurance that protects the lender against loss if a borrower stops making payments. Usually a borrower can avoid paying PMI if he/she makes a down payment of 20% or more when buying a home. The 20% equity basically acts as collateral. If the home owner defaults on the loan, he/she looses all of the equity.
How can I avoid paying PMI?
If you are not putting 20% down on a home, you'll likely be required to pay for Private Mortgage Insurance. However, once the homeowner has reached 20% equity, he/she can have the lender to cancel the private mortgage insurance. Just make a simple request to your mortgage lender, in writing, that the PMI be canceled. Many lenders provide forms that must be filled out, and provide the lender with proof of sufficient equity. The usual proof is a state certified appraisal.
You can reach 20% equity in a number of ways:
- Paying down the loan
- Appreciation of the home value
- Improvements to the home
- A combination of the above
How much does primary mortgage insurance cost?
It depends on a number of factors such as how much equity you have in your home, home loan value, and duration. Usually PMI costs in the 25 to 100 dollar range, per month.