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February 8, 2008, Newsletter Issue #102: What is PMI?
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Tip of the Week
PMI, or Private Mortgage Insurance, is a form of insurance that lenders make certain borrowers pay for along with their regular mortgage costs. There are very specific situations when lenders require PMI and they are set forth by the general lending rules and regulations. The most common reason for PMI is when you are borrowing a large percentage of your home's worth. Basically, any single mortgage loan that exceeds 80% of the value of the property will be subject to PMI. Many people are borrowing up to 100% of the value of their home as it is the only way they could afford the purchase.
Depending on the specific amount borrowed in relation to the property value, the rate of the PMI will change. PMI is to be avoided as much as possible. Take two mortgages if you have to, but you will see that the costs of PMI when added to your monthly payment can sometimes add 10-25% to your monthly living expense. PMI does not last forever. The best answer to the question of ‘what is PMI' is that it is non-permanent. PMI is waived after either a pre-set number of years after you are in your loan or after you have stabled 20% equity in the property. As soon as you reach this point, get with your lender to have the costs removed.
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