Private mortgage insurance (PMI) is a type of insurance that protects the lender if you fail to make your home loan payments. If you purchased a home with less than a 20% down payment, you will typically have to pay PMI.
PMI is a part of your monthly mortgage payment and is often collected by the lender. You can also pay it directly to the PMI provider.
What do you need to do to get PMI?
To get PMI, you will need to contact your lender. You will submit an application with your lender and provide them with the required documents. These documents may include your credit report, income statement, and property appraisal.
How much does PMI cost?
The cost of PMI varies depending on your loan amount and credit score. Typically, you’ll pay between 0.30% and 1.15% of your loan amount as PMI.
Can I avoid paying PMI?
Yes, you can avoid paying PMI in a few ways. These include:
- Making a down payment of 20% or more: If you make a down payment of 20% or more, you typically won’t have to pay PMI.
- Gaining home equity: As you pay down your loan, your home equity grows. Once your home equity reaches 20% of your loan value, you can typically request to have PMI removed.
- Refinancing your loan: If you refinance your existing loan with a loan with a lower interest rate, you may be able to have PMI removed.
What are the benefits of PMI?
There are some benefits of PMI, including:
- Lower down payment: PMI allows you to purchase a home with a lower down payment.
- Increased buying power: PMI allows you to purchase more expensive homes.
- Earlier access to home ownership: PMI can help you become a homeowner sooner.
What are the disadvantages of PMI?
There are also some disadvantages of PMI, including:
- Increased monthly payment: PMI will increase your monthly mortgage payment.
- Additional cost: PMI is an additional cost you will have to pay during the life of your loan.
- Delayed home equity building: PMI can delay building your home equity.
Should I get PMI?
To decide if you should get PMI, you should carefully consider the advantages and disadvantages of PMI. If you want to buy a home with a low down payment, PMI may be a good option. However, if you don’t want to risk a higher monthly payment, you should consider making a larger down payment.
Where to find more information about PMI?
If you have any other questions, you can contact your lender or contact the PMI provider. You can also research online or consult a financial advisor.
Suppose you want to buy a house worth Rs 300,000. You have a 10% down payment, which means you have to make a down payment of Rs 30,000. This also means you have to take a loan of Rs 270,000.
If you take a loan at an interest rate of 5% for 30 years, your monthly payment will be around Rs 1450. If you pay PMI at a rate of 0.50%, your monthly payment will be around Rs 1500.
As you can see, PMI will increase your monthly payment. However, it will allow you to purchase a home with a lower down payment.
Conclusion
PMI is a complex financial product. It is important to carefully weigh the benefits and disadvantages of PMI so that you can make the best decision for yourself. If you have any questions, be sure to contact your lender or financial advisor.
Disclaimer:
The information provided in this blog post is for informational purposes only and should not be construed as financial advice. Please consult a qualified financial advisor before making any important financial decisions.