Primary Mortgage Insurance

What is private mortgage insurance (PMI)? Private mortgage insurance is mandatory for most mortgage loans that are 80% or higher of the home's appraised value. If you borrow 81% to 100% of a home's appraised value, you will most-likely be required, by the lender, to pay private mortgage insurance. The cost of PMI is several hundred dollars on a $185,000 loan. For example, if your mortgage is $1,500/month PITI*, it would be $1,700/month with PMI. And PMI only helps the lender. For example, if you don't pay the mortgage, PMI pays the lender. It is mortgage insurance to reduce the risk the lender takes, PMI minimizes the lender's loss. You pay the premiums on this insurance policy that only protects the lender. It is lender insurance. It is possible for a borrower to purchase PMI for himself, but that isn't usually affordable for most borrowers. I once paid PMI on a loan. When I called the lender to ask for an appraisal on my property to prove the property had appreciated sufficiently that PMI could be eliminated. I no longer owed less than 80% of the home's value and could now stop paying for this insurance. The lender said it didn't work that way. The lender said I'd have to pay down 80% of my loan. The lender didn't care that my home was now worth $230,000 and that my loan was for $185,000. For example, if I owed $100,000 on a loan, I'd have to pay that loan down to a balance of $80,000 before I could apply to my mortgage holder to cancel the PMI. Needless-to-say I quickly re-financed with my credit union. My credit union agreed to give me a loan with no points* and no PMI and no closing costs***. That was years ago so that deal might not exist today. But the lesson-learned remains forever. Never again will I agree to pay PMI if I have other options. I value my money too highly to throw it away.

*PITI means: principle, interest, taxes, insurance = these things together comprise your mortgage payment

**Points are a percentage of the loan paid to the lender, by the borrower, as a cost of the loan. For example: If a loan costs two points, this means 2% is paid to the lender, by the borrower, for every $1,000 borrowed. For example, if you borrow $100,000 and pay two points you will pay $2,000 in points

***Closing costs are loan origination fees, credit report fees, employment verification fees. They can also be title fees, recording fees, lawyer fees, realtor commissions, prorated items (insurance, taxes), mortgage pay-off and lien pay-off