A brief description of PMI

PMI, or private mortgage insurance, is a lender's protection in the event that you default on your primary mortgage leading to foreclosure on your home. Lenders typically require a down payment equal to 20% (or greater) of a property's purchase price when borrowers apply for a home loan. If a borrower is unable to afford that amount (or chooses otherwise), a lender will typically look at the loan as a riskier investment. In which case they will require that the borrower take out PMI.

PMI may cost between 0.5% and 2% of the entire loan amount annually and is usually included in the borrower's monthly mortgage payment. However, there are annual and one-time payment methods as well! For example, say you had a 1% PMI fee on a $150,000 loan. The fee would add approximately $1,500 a year, or $125 each month, to the cost of your mortgage. If your lender allows it, you may be able to do a one-time charge of 3-5% of the loan amount at closing.

If the mortgage insurance was financed at the time of origination and is canceled prior to its maturity you may be entitled to a REFUND if the refundable option was chosen at time of origination. However, if there is no refund/limited option, this would negate any option for a refund. Talk to your lender and see if you can get REFUNDED the PMI payments when you reach the correct loan to value (LTV) ratio!

When your loan reaches an 80% LTV, you can request that your mortgage insurance be cancelled; this must be in writing. However, cancellation at this point is still done on a voluntary basis by the lender. It's not legally required until the 78% pay down level is reached!

Private mortgage insurance should not be confused with credit life insurance; it will not pay your mortgage each month should you become disabled, unemployed or deceased, and pays nothing to you or any of your beneficiaries. And remember PMI has been tax-deductible since 2007 and, by an extension voted by Congress, it is also in 2018.

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