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Information On Private Mortgage Insurance (PMI)

Private mortgage insurance may not be the insurance that comes with a handfull of joy and excitement, but for some new home buyers this is type is a must. This is usually the case when a home owner is not able to make the 20% down payment, and when they make that small 3 to 5 percent down payment. Private Mortgage Insurance is a type of insurance which protects the loan lender, in the case where you default on your loan. The insurance holder should understand that this insurance is in no way protecting them, its in favour for your lender. Being the purchaser of this coverage, you are legally paying for the protection of your lender. Private mortgage insurance is now required often due to the high risk of default involved when the home buyer makes a low down payment. However, the only benefit for the buyer is, the low down payment which they pay, even though it comes with a higher interest sometimes and a long term investment payout.
Now, you may be wondering how much this type of insurance would cost. The price depends on the loan amount, loan period and down payment. On most cases, it lies between 0.5% and 1% of the loan amount. Here is a typical example that was taken from a real case this past month.
Loan Amount: $200,000
Down Payment: $10,000
Mortgage Insurance/Year: $1020
Your mortgage interest may be tax deductable, sadly, this does not apply to your private mortgage insurance. Many people think thier credit level will effect this insurance premium, that is not the case. Lets take two people with two totally different credit ratings, Person A & Person B. Person A & Person B have the same mortgage loan amount, and same initial down payment, and they will pay the same mortgage insurance amount, even though they have totally different credit ratings.

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6 Responses to “Information On Private Mortgage Insurance (PMI)”

  • Ryan says:

    I was planning on a zero downpayment plan, but this will come into effect eh, hmm…I will have to think about it.

    Reply
  • Micky M. says:

    This is very valuable information.

    I myself am a mortgage insurance broker, you have very clearly touched on the basic areas of private mortgage insurance (pmi)! Great job author!!

    Micky M.,
    Mortgage Insurance Broker

    Reply
  • Elizabeth says:

    I am planning on getting a zero down payment mortgage, but I read on a new post, that it would mean a higher insurance premium.

    Reply

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