What the Heck is Private Mortgage Insurance (PMI)?

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If you’re shopping for a mortgage, you’ve probably heard somebody talk about PMI, or private mortgage insurance. What is PMI, anyway? It sounds complicated, but it’s actually pretty easy to explain. Here are some frequently asked questions about PMI.

What is Private Mortgage Insurance?

PMI is an insurance policy you pay for to protect your mortgage lender from losing money if your house goes into foreclosure. If your down payment is less than 20% of the value of the home you are buying, you are required to pay for PMI. If your down payment is 20% of the value of your home (or more), you are not required to carry private mortgage insurance.

PMI isn’t just for home purchases. It’s also required if you’re refinancing your mortgage for more than 80% of the value of your home.

How much does PMI cost?

PMI rates vary from buyer to buyer, based on your credit score and the size of your down payment. PMI rates typically range from 0.3% to 1.5% of your mortgage per year. If your mortgage is $200,000 and your credit score is good, you might pay around 0.5% in PMI, for an annual rate of $1,000 a year, or $83 a month.

How do I make PMI payments?

Some lenders will allow you to pay upfront, but most lenders add your PMI payment to your monthly mortgage statement.

How long do I have to pay for PMI?

Lenders are required to stop charging you for private mortgage insurance when the principle on your mortgage is 78% of the value of your home. However, you can ask them to stop charging you once the principle gets down to 80%. Make sure to keep track of your mortgage balance so you know when you can ask your lender to stop charging you for PMI. There is not benefit to you in making more PMI payments than you have to.

Have more questions about PMI? Call Loeffler Realty.

If you have questions about private mortgage insurance or any other part of the homebuying process, we’re here to help. Call us at (301) 882-8186, use our contact form, or email Dave at Dave@LoefflerRealty.com. Want to learn more about the great service we provide? Check out all of our five-star reviews on Facebook.