Private Mortgage Insurance (PMI) lowers the risk to the lender, should you default on your mortgage payments. Please note that PMI does not benefit you, the borrower, but instead protects the lender with whom you are getting the mortgage. PMI is often required with loans that carry a lower down payment. In fact, because of this, it is quite common for people, particularly first-time home owners, to have to pay for PMI.
With that said, you are not going to have a monthly payment towards PMI for the entire life of the loan. You could continue to pay until you have at least 20% equity in the home, meaning either you have reduced the principal balance of your mortgage to 80% of the original value of your home. The original value, in general means either the contracted sales price or the appraised value, whichever is lower. Your mortgage servicer will terminate PMI on the date when your principal balance is schedule to reach 78% of the original value of your home, however, you must be current on your payments when that date rolls around.
Another way to get rid of PMI is to refinance. Over time you have built equity in your home—simply from making payments. You could also have more equity established because your home’s value has increased from either market changes or improvements you have made. By utilizing the equity, you have established, you may cover more than the 20% requirement which means… no PMI required!!!
If you would like to discuss these options further with a mortgage banker, click here to find one near you!