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Davie Home Finance, 115 Donna Rd NE, Palm Bay, FL 32907
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PMI - Private Mortgage Insurance
PMI premium is a monthly recurring expense for the homeowner (unless the
mortgage is a lender paid PMI mortgage). The premium is calculated base on the
loan to value ratio (loan amount divided by property value). The higher the loan to
value over 80%, the higher the monthly Private Mortgage Insurance premium.
After a homeowner takes a mortgage loan with a PMI feature, there are three
ways to eliminate the banks requirement of buying PMI. The obvious is to
refinance into a mortgage without a PMI feature.
The second way is to pay down the mortgage balance to below 75%, but this can
take years to accomplish. For example, a homeowner of a $300,000 property with
a $270,000 (90% loan to value) 30-year mortgage at 6% interest rate will not be
required to carry PMI when the loan balance is paid down to $225,000 (75%), but
it would take about 10 years to pay down to pay a 90% loan to value ratio to 75%.
The third is to hire a licensed appraiser to appraise the property. If the new
appraised value has appreciated enough to make the loan balance below 80%,
the homeowner is no long required to purchase PMI on the loan. Take the
example of the above homeowner of the $300,000 property with the $270,000
mortgage, if one year later a new appraisal shows the property has appreciated
enough to support a value of $333,360, with the loan balance a year later of
$266,684 and a loan-to-value ratio of below 80% ($266,684 divided by $333,360
= 79.9%) the homeowner will no longer be required to maintain PMI.
For homeowners who already committed to mortgage loans with PMI feature, the
aforementioned are the only ways to eliminate buying PMI. For home buyers who
are in the process of shopping for mortgages, in a low interest rate environment, a
piggyback is often used to get a homebuyer with less than 20% down payment
into a house. In a high interest environment, paying the monthly PMI premium may
make more economic sense than paying the high interest second mortgage in a
piggyback loan structure.
Statistics have shown that homeowners with more than 20% equity invested in the
property are less likely to default on the loan in a soft real estate market. Banks
bear a higher risk when granting a loan of more than 80% of the value of the
property. Therefore, Private Mortgage Insurance is almost always required by
banks. Although the homebuyer often pays for the PMI premium, some banks offer
loan programs where the banks pay for the premium.
PMI premium is a monthly recurring expense for the homeowner (unless the
mortgage is a lender paid PMI mortgage). The premium is calculated base on the
loan to value ratio (loan amount divided by property value). The higher the loan to
value over 80%, the higher the monthly Private Mortgage Insurance premium.
After a homeowner takes a mortgage loan with a PMI feature, there are three
ways to eliminate the banks requirement of buying PMI. The obvious is to
refinance into a mortgage without a PMI feature.
The second way is to pay down the mortgage balance to below 75%, but this can
take years to accomplish. For example, a homeowner of a $300,000 property with
a $270,000 (90% loan to value) 30-year mortgage at 6% interest rate will not be
required to carry PMI when the loan balance is paid down to $225,000 (75%), but
it would take about 10 years to pay down to pay a 90% loan to value ratio to 75%.
The third is to hire a licensed appraiser to appraise the property. If the new
appraised value has appreciated enough to make the loan balance below 80%,
the homeowner is no long required to purchase PMI on the loan. Take the
example of the above homeowner of the $300,000 property with the $270,000
mortgage, if one year later a new appraisal shows the property has appreciated
enough to support a value of $333,360, with the loan balance a year later of
$266,684 and a loan-to-value ratio of below 80% ($266,684 divided by $333,360
= 79.9%) the homeowner will no longer be required to maintain PMI.
For homeowners who already committed to mortgage loans with PMI feature, the
aforementioned are the only ways to eliminate buying PMI. For home buyers who
are in the process of shopping for mortgages, in a low interest rate environment, a
piggyback is often used to get a homebuyer with less than 20% down payment
into a house. In a high interest environment, paying the monthly PMI premium may
make more economic sense than paying the high interest second mortgage in a
piggyback loan structure.
Statistics have shown that homeowners with more than 20% equity invested in the
property are less likely to default on the loan in a soft real estate market. Banks
bear a higher risk when granting a loan of more than 80% of the value of the
property. Therefore, Private Mortgage Insurance is almost always required by
banks. Although the homebuyer often pays for the PMI premium, some banks offer
loan programs where the banks pay for the premium.
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