PMI and refinancing are issues that many homeowners will have to deal with. Private Mortgage Insurance, usually referred to as PMI, is a type of insurance for a mortgage that refinance lenders normally will require whenever individuals borrow more than eighty percent of the value of their home. Many people wonder if there are ways to avoid this additional cost and it can be possible to do so.
This insurance is coverage that will protect a mortgage lender in case the borrower becomes unable to repay the loan. Loan companies consider this to be necessary since the owner is using up his equity to obtain the money. While this is an extra expense for those who refinance, it has the advantage of allowing them to obtain a loan of up to one hundred per cent of the home’s current value.
The borrower normally will pay this mortgage coverage on a monthly basis in the form of an addition to the monthly mortgage payment. In this case, with PMI included, a total monthly mortgage payment will consist of the principle, interest, homeowner’s insurance, taxes, and the private mortgage insurance. This is sometimes abbreviated as PITI plus PMI.
Of course, the most obvious way to avoid paying additional costs would be to borrow less than eighty per cent of a home value. If someone has been in the property for a while, or property values have risen considerably, they may have enough equity to obtain the funds they need without going over this limit.
For those who have recently purchased or not seen a rise in market price, it is sometimes possible to use a split loan option. This involves getting a first mortgage at eighty per cent and a second at fifteen or twenty. The second will almost always have a higher interest rate than the first.
Private mortgage insurance can add a significant amount to a your monthly mortgage payment and you should always discuss your options in detail with your lender.