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| What
is PMI? Can I get rid of the PMI on my loan? |
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PMI
or Private Mortgage Insurance is normally required
when you buy a house with less than 20% down. Mortgage
insurance is a type of guarantee that helps protect
lenders against the costs of foreclosure. This insurance
protection is provided by private mortgage-insurance
companies. It enables lenders to accept lower down
payments than they would normally accept. In effect,
mortgage insurance provides what the equity of a higher
down payment would provide to cover a lender's losses
in the unfortunate event of foreclosure. Therefore,
without mortgage insurance, you might not be able
to buy a home without a 20% down payment.
The cost of PMI increases as your down payment decreases.
Example: The cost of PMI on a 10% down payment is
less than the cost of PMI on a 5% down payment. Your
PMI premium is normally added to your monthly mortgage
payment.
The decision on when to cancel the private insurance
coverage does not depend solely on the degree of your
equity in the home. The final say on terminating a
private mortgage-insurance policy is reserved jointly
for the lender and any investor who may have purchased
an interest in the mortgage. However, in most cases,
the lender will allow cancellation of mortgage insurance
when the loan is paid down to 80% of the original
property value. Some lenders may require that you
pay PMI for one or two years before you may apply
to remove it.
To cancel the PMI on your loan, contact your lender.
In most cases, an appraisal will be required to determine
the value of your property. You will probably also
be required to pay for the cost of this appraisal.
Another way of cancelling the PMI on your loan is
to refinance and to get a new loan
without PMI. |
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