Mortgage buyers who put less than 20% of a down payment at closing will likely pay a PMI, or Private Mortgage Insurance.
This policy protects your bank or other lender in the case you can’t pay it back and end up in foreclosure.
Unfortunately, you can’t shop around for PMI since the provider adds it automatically. But once you’ve paid down a certain amount of your mortgage, the PMI is cancelled. This is because borrowers are less likely to default on their loans, resulting in a loss for the lender, once they have a large financial investment into the property. It will likely take a few years of payments, but speak to your provider about the details, since this number depends on the loan amount, applied interest rate, and your credit score.
How much is a PMI? It’s estimated you will spend roughly $50 per month for a $100,000 loan, but it really depends. The higher the loan, the higher the cost. It will also increase if you are considered a financial risk.
Want to get your Private Mortgage Insurance cancelled even sooner? Refinancing or getting a new appraisal occurs when you believe the value has increased on your home. Since appraisals cost a few hundred dollars, it’s in your best interest to call your bank beforehand and ask if this is a tactic that will have a positive effect on your PMI so you don’t waste your time and efforts.
Keep in mind that a PMI is distinctly different than an MIP, or Mortgage Insurance Premium. While a PMI is privately given, an MIP is government-issued. It covers a buyer’s payments in the case you become disabled and are no longer able to work, or in the case of your passing away. A Private Mortgage Insurance does not cover these items.
Veterans and members of the military who have taken out government-provided VA loans do not have to pay Private Mortgage Insurance. More information about these special programs can be found at your local veterans office.