Private Mortgage Insurance (PMI)
When purchasing a home, there are many different costs to factor into a budget. While many people are aware of expenses like taxes and the cost of making repairs, there are some costs that people don’tthink about, such as Private Mortgage Insurance (PMI). PMI is an additional monthly expense added to your mortgage payment when you make a smaller down payment on a home.
Why is PMI Required?
Private Mortgage Insurance is generally required by lenders when you are putting a low amount down on the home. When you put less money down on a home, the risk is higher, so lenders will require the insurance to protect themselves in case of a mortgage default.
Will PMI Ever Go Away?
With a conventional loan, PMI can be canceled when your equity rises above a certain percentage. Thishappens when mortgage payments are made or a home’s value appreciates.
If you’re eligible to cancel PMI, your lender will want to schedule an appraisal to ensure that you have enough equity.
With an FHA loan, you may be eligible to cancel PMI when you pay your mortgage down to a certain percentage of the original sales price. The market value of the home doesn’t matter.
If you’d like to know whether you can cancel your PMI, speak with your mortgage lender.
Can PMI Be Avoided?
There are different ways in which paying for PMI can be avoided. You may not have to pay PMI if you put a larger amount down on a home or, in some situations, are willing to pay a higher interest rate. There are also mortgage options that do not require PMI, like VA loans. Our partner, Mortgage Center, offers several mortgages including the PMI Saver, which allows you to avoid PMI with a smaller down payment.
If you have questions about PMI, including whether your PMI can be canceled, speak with yourmortgage lender. If you’d like to keep your mortgage with your credit union or are interested in the PMISaver mortgage, contact our partner, Mortgage Center, by calling 800.353.4449.
Information as of February 2019.
Mortgage Center is an Equal Housing Lender NMLS# 282701