Confused about PMI? You're not alone. So today we're dispelling the top two myths.
Private mortgage insurance, or PMI, is an insurance that protects the lender/investor if you are unable to pay your mortgage. All conventional, conforming loans backed by Freddie Mac without at least 20% down require some form of credit enhancement or PMI.
Myth: PMI will add hundreds to my mortgage payment.
Fact: Not necessarily. It varies based on your loan–to–value ratio – the amount you owe on your mortgage compared to its value – and credit score, but you can expect to pay between $40 and $80 per month for every $100,000 borrowed.
The value of paying PMI may be getting your foot in the door at today's historically low mortgage rates and affordable home prices in many parts of the country.
Myth: I can't cancel PMI.
Fact: If you have a conventional mortgage, you'll have to pay PMI until you've built more than 20% equity in your home. Borrowers with FHA loans are responsible for paying FHA mortgage insurance premiums for the life of the loan.
If you are current on your payments, PMI will automatically terminate on the date when your principal balance is scheduled to reach 78% of the original value of your home. That date will be given to you in writing on a PMI disclosure form when you get mortgage.
You can also request that your lender cancel your PMI if you have made additional payments or if rising home values have increased your home equity to more than 20%. Your request must be in writing and meet these additional criteria.
Get the low down on down payments and PMI.
Read other posts in our Myth vs. Fact series:
- Myth vs. Fact: Qualifying for a Mortgage
- Myth vs. Fact: Down Payments
- Myth vs. Fact: Mortgage Refinance
- Myth vs. Fact: 3% Down Mortgages
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