Private
mortgage insurance, or PMI, insures the lender against a
default. It is required when the borrower is making a
cash down payment of less than 20 percent of the
purchase price.
PMI costs vary from one mortgage insurance firm to
another, but premiums usually run about 0.50 percent of
the loan amount for the first year of the loan. Most PMI
premiums are a bit lower for subsequent years. The first
year's mortgage insurance premium is usually paid in
advance at the close of escrow, and there is usually a
separate PMI approval process.
Lenders generally turn to a list of companies with
whom they regularly work when lining up private mortgage
insurance.
In most cases, PMI can be dropped after the loan to
value ration drops below 80 percent. Find out from your
lender what procedure to follow to have PMI removed when
your equity reaches 20 percent.
For homeowners who have improved their properties and
believe that their equity has increased as a result of
these improvements, refinancing the property at a
loan-to-value ratio of 80 percent or less is another
possible way of eliminating PMI payments.
