Private mortgage insurance (PMI) exists to protect your lender in case you default on your loan. It applies when you borrow more than 80% of the property’s purchase price, lessening the risk of lending a high amount of money.
Considering that it covers a loss to the lender, no borrower takes pleasure paying for it. Actually, many people get creative and go great lengths just to avoid it. If you’re currently being billed for PMI, Altius Mortgage Group says that you could refinance your mortgage in Utah, Idaho, or Nevada to eliminate (or at least decrease) it.
Although it’s easy to wrap your head around its purpose, PMI remains misunderstood on many levels. You may see it as the additional expense you wish not to be responsible for, but you probably believe these misconceptions about it too:
It is Pure Bad
Not necessarily. If you don’t have a mortgage yet, it could be the reason you could qualify for one without paying a 20% down payment. Its coverage would help your lender sleep tight at night. If you stop making payments, the insurer would shoulder a significant portion of the loan balance. Your lender needs some assurance because the proceeds of a foreclosed property sale usually wouldn’t suffice to recover from the financial loss completely.
PMI can be your persuasive tool to make a lender agree to loan you the money you need to buy a property. Yes, you need to pay for it monthly, but it allows you to own a house now rather than saving more money for down payment.
It Increases Monthly Payments by Hundreds of Dollars
PMI payments are relative. They depend on your loan-to-value ratio. Normally, you could expect to be billed for about $40 to $80 for every $100,000 that you borrow. If you refinanced a few years later, your PMI payments could drop considerably after building significant equity through mortgage principal reduction and home appreciation.
It Doesn’t Allow Cancellation
Wrong. Lenders generally terminate it after your principal balance reaches below 80% of the house’s original value. Stay current on your monthly payments, and you’ll know exactly when it’s scheduled to be cancelled. Also, you can ask your lender to terminate it sooner if you make extra payments or feel that your property’s value has appreciated over time.
PMI is a burden, but a necessary one to realize your home ownership dream. It’s never too late to learn how to use it to your advantage and eliminate it ASAP when it no longer serves you any purpose.