Mortgages and PMI - Private Mortgage Insurance August 13th, 2008 categories: Mortgage/Finance I was discussing mortgages with a client buying a home for sale in Clintonville this morning after a walk through on his home. The subject of PMI came up and, since it often seems to be a little nebulous for home buyers, I thought I’d say a few words about why it exists and when it can go away.
It is difficult to get a loan these days without PMI. If you’re putting anything less than 20% down, you are likely to have to pay PMI, very likely. During the Jurasic Period, the crazy strong real estate market of the early-mid 200s, home buyers avoided PMI with products like 80–20s and 90–10s. As Jack Guttentag pointed out in a recent Inman News article, “Lenders discovered that they could make 95 percent and even 100 percent loans by getting other lenders to offer second mortgages for the amounts over 80 percent of property value. Piggybacks carried higher rates than the first mortgages, but in many cases the cost to the borrower was smaller than the cost of mortgage insurance. The interest on piggybacks was deductible where mortgage insurance premiums were not.
In addition, borrowers could pay off the seconds in full at any time, whereas getting rid of PMI was a hassle. Of course, the PMIs did not give up market share willingly. They induced Congress to make mortgage insurance premiums deductible, at least for a period, but this had only a small impact.” Well, PMI is back. One thing to keep in mind is that PMI, and it’s Federal equivalent MIP, don’t protect you, they protect the lender. Mortgage Insurance Premium (MIP) and Private Mortgage Insurance are mortgage insurance programs that protect the lender in case you default on your loan.
In most (but not all) cases, MIP or PMI will be required by the lender if you put less than 20% down on the purchase of a house. How and When does it go away PMI can be dropped with the blessing of the servicer as long as the property has increased in value either from appreciation, capital improvement or principal reduction. The PMI must be in place for at least 2 years before the servicer will consider it. The servicer will also ask to have the properties appraised at the borrowers expense. So if you’ve lived in your home at least 2 years and think you may be able to get rid of your PMI, call me for an appraiser.