Private Mortgage Insurance (PMI) helps borrowers with less than twenty percent down payment to receive mortgage financing. Traditionally, mortgage lenders reject any mortgage application with less than twenty percent down payment. It has been proven that borrowers with less then twenty percent down payment are more likely to default on mortgage payment. The PMI protects the mortgage lenders in case of default on mortgage payment.
The mortgage lenders set the borrower with less than twenty percent down payment. In return, the borrowers pay for the PMI premiums. In the past, the borrowers pay the PMI lump sum on the closing. Over the years, the PMI is spread out to the life of the mortgage.
For example, the borrower pays five percent down payment. Then, the mortgage lender closes the mortgage application. In the meantime, the borrower pays the PMI premiums. In the event of mortgage payment default, the mortgage lender receives the fifteen percent that the borrower is suppose to put as down payment.
For a fixed rate less than twenty mortgage years, the borrower pays 0.79% on up to 4.99% down payment, 0.56% on 5% to 9.99% down payment, 0.23% on 10% to 14.99% down payment, and 0.19% on 15% to 19.99% down payment.
For a fixed rate greater than twenty mortgage years, the borrower pays 0.90% on up to 4.99% down payment, 078% on 5% to 9.99% down payment, 0.52% on 10% to 14.99% down payment, and 0.32% on 15% to 19.99% down payment.
For example, the borrower purchases a $200,000 home on a 5% down payment, fixed rate loan, and 30 year mortgage. The borrower pays a PMI premiums of $130 per month ([(0.78% x $200,000) / 12]). You may have to consult your mortgage broker for a complete and current PMI rates.
The mortgage lenders can remove the PMI premium when the home equity reaches over the twenty percent of the original mortgage amount. In the past, the borrowers pay PMI premiums even if the borrower does not really need PMI. Now, the mortgage lenders automatically remove the PMI premiums for any house purchase after July 29, 1999 after the home equity reaches over twenty percent. There are two ways for home equity to reach over twenty percent. First, the fair market value rise over twenty percent. Second, the borrower pays up the mortgage to twenty percent of the original mortgage amount.
PMI helps the borrowers with less than twenty percent down payment to become home owners. The borrowers must evaluate between second mortgage and PMI. Situation defers for each borrower. PMI may be advantageous to another, or vice versa. PMI premiums can be removed, when the home equity reaches past twenty percent of the home value. PMI rates are subject to change. So, you must consult your trusted mortgage broker for the current PMI rates.