Private Mortgage InsuranceAs if hunting for mortgage loans isn't confusing enough, some people even have to worry about private mortgage insurance or PMI. PMI is an insurance that is required when your down payment is less than 20 percent of the homes appraised value or if the loan-to-value ratio is 80 percent or higher. This insurance protects the lenders if the loan goes into default. Statistically speaking, people who put less than 20 percent down have more of a chance of going into default and the lenders want to be protected.
One bad thing about a PMI is that you will not see this money again. One of the good things is that because you have obtained a PMI you may get lower interest rates on the loan. The costs of the PMI my counter act any savings you get in interest so you may not be saving money after all.
Once you get a PMI you are not stuck with it the duration of the loan. You can get out of it eventually, but, the lender may not let you know when you are eligible to get out of it so you will need to keep up with your mortgage statements yourself.
To get out of a PMI you need to know when your loan-to-ratio value gets below 80 percent. To do this you need you latest mortgage statement and divide the remaining amount by the original purchase price of your home, if this number is below the 80 percent you can get out of your PMI.
There are a few ways to get out of paying for a PMI. For one thing lenders may offer you two loans instead of the one where you can make a 10 percent down payment that is called and 80-10-10. Some lenders may offer you higher interest rates instead of a PMI. You are making higher payments each month but you have avoided making two loans and the cost of the PMI.
For some people a PMI is unavoidable. Eventually you can get out of it. As with all things make sure to research PMI's before you sign on to one, in doing so, you have enlightened yourself to what kind of PMI's are out there and you can make and informed decision.