Frequently Asked Questions (FAQ)
What is PMI? Can I get rid of the PMI on my
loan?
PMI or Private Mortgage Insurance is normally required when you buy
a house with less than 20% down. Mortgage insurance is a type of guarantee
that helps protect lenders against the costs of foreclosure. This
insurance protection is provided by private mortgage-insurance companies.
It enables lenders to accept lower down payments than they would normally
accept. In effect, mortgage insurance provides what the equity of
a higher down payment would provide to cover a lender's losses in
the unfortunate event of foreclosure. Therefore, without mortgage
insurance, you might not be able to buy a home without a 20% down
payment.
The cost of PMI increases as your down payment
decreases. Example: The cost of PMI on a 10% down payment is less
than the cost of PMI on a 5% down payment. Your PMI premium is normally
added to your monthly mortgage payment.
The decision on when to cancel the private insurance
coverage does not depend solely on the degree of your equity in
the home. The final say on terminating a private mortgage-insurance
policy is reserved jointly for the lender and any investor who may
have purchased an interest in the mortgage. However, in most cases,
the lender will allow cancellation of mortgage insurance when the
loan is paid down to 80% of the original property value. Some lenders
may require that you pay PMI for one or two years before you may
apply to remove it.
To cancel the PMI on your loan, contact your lender.
In most cases, an appraisal will be required to determine the value
of your property. You will probably also be required to pay for
the cost of this appraisal. Another way of cancelling the PMI on
your loan is to refinance and to get a new loan without PMI.
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