Private Mortgage Insurance
It’s easy to think of Mortgage Insurance as an unnecessary evil since it only protects the lender.
Decide for yourself:
- Private Mortgage Insurance is required when you have a Conventional loan with less than 20% down payment.
- Abbreviations are often used in the industry:
- MI for Mortgage Insurance
- PMI for Private MI (Conventional loan)
- LPMI for Lender Paid MI
- MIP for Mortgage Insurance Premiums (a.k.a. FHA Mortgage Insurance)
- UFMIP for Upfront Mortgage Insurance Premium (another FHA Mortgage Insurance – a FHA loan has both upfront and monthly mortgage insurance)
- Credit Score Driven (FHA Mortgage Insurance is not credit score driven, so lower credit scores may have lower MI rates with a FHA loan vs. a Conventional low down payment mortgage)
Disadvantage of Private MI:
- It only protects the lender
Advantages of Private MI:
- You can purchase a home with less than 20% down payment
- PMI has flexible payment options
- One-time, at-closing premium (No monthly MI payments! Payable by Seller-Paid Closing Costs!)
- Monthly MI (removable)
- Combination of Upfront and Monthly (Split-MI)
- Lender-paid MI (higher interest rate, non-removable) (Often advertised as No MI)
- Request cancellation at 80% Loan-to-Value (LTV)
- Automatically cancels at 78% LTV
- There’s options! Behind the Scenes, a Mortgage Broker researches their lenders for not only the best home loan rates, but also the best mortgage insurance scenarios. Just like there are many lenders, there are multiple MI companies. Similar to interest rates, MI factors are generally higher with less money down and a lower credit score and vary slightly depending on the MI company.
Current Private Mortgage Insurance rates (effective after December 4, 2017) for borrower-paid monthly:
To determine the amount paid monthly, multiply the percentage factor by the loan amount. That will give you the yearly amount. Divide by 12 to calculate the monthly amount, or use a MI calculator.
What do you think of Private Mortgage Insurance? Is it hurting or helping?