Unfortunately, there are many people today who have mortgages and cannot answer the question, how much is PMI. If you want to buy a home you need to have saved up enough money to be able to pay the twenty percent down payment that many home owners require in order for you to be able to start the process of applying for finance to acquire that property. If you don’t have enough money to put up enough of a down payment you will be forced to secure Private Mortgage Insurance (PMI) before signing off on the loan. PMI protects the mortgage lender in case you default on the payments. This is the best way of buying a house without having to save up for the standard down payment – especially for new home buyers. However, everything that has advantages also has its own disadvantages.
How much is PMI – the dollars and cents
The cost of PMI should be the first thing that comes to mind when you are looking to avoid PMI. In most cases the cost is between 0.5% and 1% of the whole annual loan amount. For example a $1,000,000 loan will attract approximately $10,000 PMI annually or $833.33 monthly which is a hefty sum by all standards. PMI also leaves out in the cold many dual income families who are just above the threshold in most countries. Another thing you need to consider when you want to avoid PMI is the fact that when most people hear the word insurance they tend to think that their kids will be compensated in case they die, which is not the case with PMI.
In that case, the lending institution will be the only beneficiary of this policy and all the proceeds will directly be paid to the lender. You also need to know that if you are looking to buy a home and you have paid less than the required 20% down payment of the sale price of the home you will be required to pay mortgage insurance until the amount reaches the 20% limit. This may take you years to accomplish and at the same time costs a lot of money.
PMI is also very hard to cancel and this is because eliminating the burden of monthly payments is not as easy and this is because in some cases the home buyer will be required have a letter form the home owner requesting for the cancellation of the PMI and also a home appraisal form. This is a process that can take even months to complete and the more time it will take to cancel it the more it will cost you.
It is also true that in some cases some lenders force the lenders to keep the PMI contract for a specific period of time even after the lender has reached the 20% required limit. It is therefore important to check with a lender by reading the fine print to avoid being tied down for a long period you had not planned for. The answer to how much is PMI is not the only important thing to know about private mortgage insurance – the details are incredibly important, and are to be found (as always) in the fine print of your own PMI contract – read it carefully.