Mortgage Insurance Tips
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Private Mortgage Insurance Companies and Rate Plans
There are a limited number of private mortgage insurance companies in the United States. However, this does not mean that you do not have choices. Lenders will require you to have private mortgage insurance (more commonly called PMI) if you are making a down payment of less than 20% of the value of a home. PMI is also required if you are refinancing a home and the loan to value ratio is higher than 80%.
Borrowers may be able to negotiate with their lenders and have them pay the cost of private mortgage insurance. Although this will result in a higher interest rate, this may be more affordable than the monthly premium that will need to be paid.
Borrowers should request a private mortgage insurance quote for monthly payments, annual payments and for PMI built into your interest rate so you can determine which private mortgage insurance plan will be right for you.
The ability to put down less than 20% of the value of a home is possible due to private mortgage insurance companies. Private mortgage insurance has made home ownership a reality for millions of homeowners.
Home Mortgage Insurance
If you have a home that is financed through a lending institute you will need to carry a home mortgage insurance policy on the home. The requirements vary between each company as to what dollar amount of insurance needs to be on the home but the minimum amount is typically the payoff of the home.
With many companies you are offered a discount for carrying multiple insurance policies including your home mortgage insurance, vehicle, RV, motorcycle and even your boat insurance. This is a benefit to both you and the insurance agent to have all of these policies bundled together. With the bundling of two or more of the policies as long as one of them is a home mortgage insurance you will see a substantial savings on your overall policy, typically at least a 20 percent savings.
A typical home mortgage insurance rate will vary slightly for many reasons including what part of the country you are located in and the value of your home, just to name a few. Contacting your insurance company for a mortgage insurance quote will be the best way to see what you can afford and what you need for your area.
Quick Guide to Private Mortgage Insurance
Most new home buyers are not even aware of private mortgage insurance until they have been told that they are paying for it. Private mortgage insurance is not for borrowers, it is for lenders.
Commonly referred to as "PMI" private mortgage insurance protects the lender in the event that you default on your mortgage loan before you finish paying it off. This figure is included in lenders mortgage loan calculations when determining how much money you can borrow on your home. The higher your down payment, the less likely your lender will be to request private mortgage insurance. Homeowners who have at least 20% down are not required to have private mortgage insurance.
PMI can be expensive, and the less money you put down on your home, the more it will cost you on a monthly basis. The rates are based entirely on the difference between the amount you put down on your home and the amount needed to reach 20% of equity. Your credit report has no bearing on your rate.
The Homeowner's Protection Act (HPA) of 1998 made it a rule that lenders notify borrowers when they have reached an equity level of 20% allowing them to cancel PMI. Automatic cancellation must be done when the loan to value ratio becomes 78% if not previously canceled.
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| Jennifer Mathes, Ph.D. |
