Private mortgage insurance - what is it?

When you have a conventional loan, you may be required to pay for PMI or private mortgage insurance. As with other kinds of mortgage insurance, PMI only protects the lender, not you, if you stop making payments on the loan. 

PMI payments: how do I make them?

Payment for PMI can be made in a variety of ways.

• More than one option may be available depending on the lender, while others may provide just one.
• Ask lenders about their options before signing any documents.

Typically, PMI premiums are paid monthly.

• Your mortgage payment includes this premium.In the Projected Payments section, you will see the premium on page 1 of your Loan Estimate and Closing Disclosure.
• When you apply for a mortgage, you will get a Loan Estimate before you sign the loan agreement.
• Your Closing Disclosure includes the premium on page 1 under Projected Payments.

PMI can be purchased with an upfront premium paid at closing.

• The premium may not be refunded if you move or refinance after making an up-front payment.

In some cases, you pay upfront as well as monthly.

• The up-front premium appears under section B on page 2 of your Loan Estimate and Closing Disclosure.
• The premium added to your monthly mortgage payment can be found in the Projected Payments section of your Loan Estimate and Closing Disclosure.

Several loan options may be available to you from lenders. But, first, obtain a few different timeframes from the loan officer to calculate the total costs.

When choosing a loan with PMI, what are the essential factors to consider?

Sometimes lenders offer conventional loans with lower down payments without requiring private mortgage insurance. However, these loans usually have a higher interest rate. You may or may not find paying a higher interest rate cheaper than PMI - it depends on several factors, including your plans to remain in the house. A tax advisor can also tell you how paying more in interest or PMI might affect your taxes differently.

The borrower may also want to consider other options such as FHA loans if they have a low down payment. According to your credit score, down payment amount, lender, and general market conditions, you may pay more or less for different loans than you would for a conventional loan with PMI.

Saving money to pay 20 percent down may also be a good idea. A conventional loan does not require PMI if you pay 20 percent down. In addition, with a 20 percent down payment, you can also receive a lower interest rate.

See which option is the best deal by asking lenders to show you detailed pricing.

The lender is protected by private mortgage insurance, not you. So PMI won't keep you in your home if you fall behind on payments.

Once you have accumulated a certain amount of equity in your home, you might be able to cancel your mortgage insurance premium. 

If you do not qualify for a loan without PMI, you can qualify for one through other types of mortgage insurance. It may increase your monthly payment, however. Furthermore, you are not protected in the event of a problem with your mortgage-it protects only the lender.