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What is Private Mortgage Insurance?

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by: No more debt !
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Date: Mon, 21 Jul 2014 Time: 12:53 AM
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What is Private Mortgage Insurance?

 

Private mortgage insurance, PMI, is insurance coverage that is designed to protect the mortgage lenders in the event of the borrower defaulting on their mortgage and even foreclosure. Private mortgage insurance also enables the potential homebuyer to put down a smaller down payment when they are not able to put down at least 20 percent (or they simply choose not to do so).

 

By getting the private mortgage insurance and not putting down at least 20 percent for the down payment, the potential homebuyer is still able to get affordable mortgage rates. Getting the private mortgage insurance will be done before signing the loan. The amount of money that you pay for the private mortgage insurance is dependent on the size of the down payment you put down and the size of the purchase mortgage that you obtain; the average amount you pay here is around half of a percent to one percent.

 

If you do get private mortgage insurance, there are three levels of insurance you can choose from:

  1. Single Premium PMI- With the single premium private mortgage insurance, you pay the premium to the mortgage insurance at the start in one large lump sum. By doing this format, you eliminate the need to have a private mortgage payment to pay each month. So yes, it does provide a bit of a burden at the beginning since you have to make a potentially large payment but you have peace of mind knowing you do not have to remember to pay each month.
  2. Lender-Paid PMI- With this form of private mortgage insurance, also known as LPMI, the cost of the private mortgage insurance is combined with the mortgage interest rate that is paired with your mortgage. This is nice because it reduces the monthly payment you make each month towards your mortgage. However, you can have to pay more money in interest over the course of the loan term. Unlike private mortgage insurance you pay each month, you are not allowed to cancel the insurance because it is a permanent fixture of the loan.
  3. Borrower-Paid PMI- Also known as BPMI, you have the monthly payment to make each month until you pay enough to cancel it. When your outstanding balance reaches 78 percent of your home value or when you pay 20 percent of the purchase price of the home. It is up to your lender to approve the PMI cancellation.

 

If you are looking to buy a home, then shop using TrueFi! We are an online mortgage brokerage firm. 

About the Author

We are mortgage brokers that specialize in refinance and purchase loans. We service CA, CO, & VA. We make the process easy so refinance or buy through us today!


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