Mortgage Q&A: What is Private Mortgage Insurance or PMI?

If you are a first-time home buyer, with not a lot of money in the bank, you will probably hear the term “pmi” or “private mortgage insurance” sometime in the mortgage process. This is because private mortgage insurance is required on all mortgages where the loan-to-value ratio is 80% or greater. To put this in simplified terms, if you buy a house that is $60,000, and you are unable to put $12,000 (20%) down as a down payment, you will have to pay private mortgage insurance. This is actually to protect the lender from you defaulting (not paying) on your loan.

As a buyer, you will probably want to get rid of the private mortgage insurance (PMI)as soon as possible, because it is not tax deductible, and you never see it again. It really does nothing to help you. Unfortunately, you will probably not receive notification from the lender when you have paid off enough of your mortgage to be able to stop paying PMI. So you will need to carefully look at your mortgage statements to keep track of the debt to value ratio of your loan. Whenever it falls below 80%, you will then be able to make arrangements to drop the PMI.

Even if you haven’t paid enough money down, you may be able to drop PMI if your house has appreciated in value. For example, if you buy a house for $60,000, and you remodel it, and the value goes up to $80,000, you can get it re-appraised and drop the private mortgage insurance.

Whichever way is best for you, be sure to keep watching your mortgage statements, and do everything possible to drop the private mortgage insurance as soon as possible. For other tips, see [] Also, talk carefully with your mortgage professional before signing on to any loan agreement.

Leave a Reply