Private Mortgage Insurance

Private Mortgage Insurance

by Steve Meyers

Keller Williams Greater Seattle

If your down payment on a home is less than 20 percent of the appraised value or sale price, you must obtain private mortgage insurance, known as PMI, with your lender.  This will enable you to obtain a mortgage with a down payment below 20% because now, your lender is protected against any default on the loan through the PMI.

PMI charges vary depending on; the percentage the down payment is to the loan amount, the overall size of the loan, whether it is an original purchase or a refinancing, your credit score, if it’s a second home or a condominium, and other factors.

There are several different types of mortgage insurance (MI) available. Which product is best for you depends on your individual situation.  You should ask your lender to research and clarify which one of these plans will work best for your current purchase or refinance.

Monthly Premium Mortgage Insurance

Monthly Premium features a coverage term of one month, with premiums remitted with your regular monthly principal and interest payment to your lender.

Single Premium Mortgage Insurance

A single premium is typically paid in-full at closing.  The up-front cost may be between 1.5 and 4% of the original loan balance but, if the borrower can afford this up-front cost, it might save them significantly over the period it’ll take to pay down the loan to 80% of the homes fair market value. With Single Premium Mortgage Insurance, homebuyers enjoy monthly payments that are much lower than they would be with traditional Monthly Premium Mortgage Insurance.

Split Premium Mortgage Insurance

Split Premium Mortgage Insurance offers an affordable and flexible up-front premium to help provide significantly lower monthly Mortgage Insurance payments when compared with traditional Monthly Premium Mortgage Insurance. The Borrower pays a small up-front Premium at closing, and then pays lower Monthly Premiums.  For instance, if the Borrower can pay an up-front Mortgage Premium of .75% to1.50% of the loan amount, then the Monthly Premiums will be lower, proportionately.

Here’s an example of the 3 alternatives listed above:

Using a Mortgage Loan Amount of $270,000, 95% of a purchase price of $300,000.  Remember that the percentages I present to you below will vary based upon; the size of the loan, condominium or second home, whether it’s a refinancing, your individual credit history, and other factors.  This is just an illustration of how this works.

Monthly Premium Mortgage Payments of (0.0007833% of the Loan Amount per month) or, $211 added to your Monthly Principal and Interest Payment until the loan is paid down to 80% of the Market Value of the home.

Single Premium Mortgage Payment of (1.95% of the Original Loan Amount, up-front) or $5,265 due at Closing.  There will be zero monthly amount for Mortgage Insurance.

Split Premium Mortgage Payments of (1.0% of the Original Loan Amount, up-front) or $2,700 due at Closing.  Then there will be a Monthly Mortgage Premium Payment of (0.000275% of the Loan Amount per month) or $74 added to your Monthly Principal and Interest Payment

Annual Premium Mortgage Insurance

Annual Premium Mortgage Insurance features an annual premium with one level rate for the first year premium and the annual renewal premiums. The first year’s premium is due at closing and the Lender then escrows monthly for the next annual premium.

Lender Paid Mortgage Insurance

Your Lender may have a Mortgage Insurance available directly through their financial institution.  The Premiums are most likely to be included directly in the interest rate for the loan which provides the benefit of it being partially or entirely deductable.

FHA Loans

FHA Loans include their own form of government insurance.  Part of the premium is paid up-front, and part is charged as a monthly cost.

VA Loans

VA Loans exist for veterans of the military.  These loans have their own special requirements.  If you are a military veteran, your local lender can provide you the details for your area.

Have fun and good luck with your purchase.  If I can help you in any way or, if you have questions or comments about this article, please email me at smeyers@kw.com.  Steve Meyers, Managing Broker, Keller Williams Greater Seattle. (206) 972-3328

Information in this article was supplied, in part, by Dan Blair and Gail Bean, Sales Managers, MetLife.  You can contact Dan directly at dblair@metlife.com  (206) 691-2936.  Gail Bean at gbean@metlife.com  (206) 691-2928.

Another article I’ve written that you may also find useful is “The Pre-Approval Process Can Be Tricky?”   and can be found at  https://ourseattlehome.wordpress.com/2010/05/07/the-pre-approval-process-can-be-tricky/

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