Mortgage insurance is an insurance policy that protects the mortgage company if you happen to default on your loan. There are different insurance policies that may be required when buying a home, but primate mortgage insurance (PMI) is one of the most common.
When is PMI Required?
This type of insurance is required on conventional mortgages with a down payment of less than 20% of the purchase price. A conventional mortgage is any type of loan that the federal government does not back.
How Long Do You Pay PMI?
Mortgage insurance is not necessarily required for the entire loan term. Since it is required on conventional loans with less than a 20% down payment, the insurance may only be necessary until you own at least 20% equity in your home. After making monthly payments and accruing at least 20% equity, you may be able to consider refinancing your loan to cancel any private mortgage insurance premiums.
Is Mortgage Insurance Paid Monthly?
Payment plans and options may vary depending on the mortgage company and the final loan terms. One option may involve paying the mortgage company an up-front premium at the mortgage closing, covering the total cost of the insurance plan. Another possible option is to pay monthly, combining the price with your monthly mortgage payment into one.
How is Mortgage Insurance Calculated?
The cost of mortgage insurance may vary depending on the down payment size, your credit score, and the home price. Typically, insurance may cost anywhere between 0.5% – 5% of the loan amount.
How to Avoid Having Mortgage Insurance
First, it’s essential you speak with a mortgage specialist to determine if your desired scenario would require PMI. If you cannot make a 20% down payment, you may explore receiving a down payment gift, or you can create a down payment savings plan to help expedite the savings process.
Still have questions? Get in touch with one of our mortgage specialists!
