Special offer

Charlotte NC Buyers Q&A: What is PMI ?

By
Real Estate Agent with Savvy + Company (704) 491-3310 228209

Charlotte NC Buyer Q&A:  What is PMI ?What is PMI ?

Should buyers place a down payment of less than 20% on their new home purchase, they are required pay for Private Mortgage Insurance (PMI).

 

Private Mortgage Insurance protects the lender in the event that one doesn't make their mortgage payments.  If the homeowner fails to pay, the bank will foreclose upon the property.  The insurance company will then pay the bank the difference between 20% and the amount actually put down on the property.  

 

For example, if you only put down 5% and default on your mortgage, the insurance company will pay the bank/lender the remaining 15% that you didn't pay initially or over time.

 

The bank is protected by your required payment for their protection (this is not currently an option in any institution that I am aware of).

 

If your down payment was...

Divide the mortgage amount by tDivide the mortgage amount by this number to get your monthly
PMI cost
monthly
PMI cost

5%

1500

10%

2300

15%

3700

 

Here's an example:  If you buy a $400,000 home and put 10% down. Your down payment is $40,000 and the mortgage is $360,000. Divide the $360,000 mortgage by 2300 and you get your monthly PMI cost, $156.52.

 

If your down payment on that same $400K property is 15% down, then $60,000 would be the amount of down payment with a mortgage of $340,000 / 3700 = $91.89/month PMI cost.

 

*Please note that these are estimates.  You should consult with your mortgage broker/lender to verify these calculations.  Keep in mind that we recommend putting down a full 20% to avoid having to pay PMI, if at all possible.

 

You can cancel your PMI as soon as you own 22% of your home.  Now that the lender no longer needs protection with regards to the amount put down on your home--you own 22% or more of your home--simply contact the insurance company and CANCEL your premium!  

 

**Suggestion:  Since you are accustomed to paying PMI and no longer need to do so, apply that monthly residual that you were paying for PMI to the principal balance of your mortgage!

Shopping for a lender or a home in the Charlotte NC area?  Let me know how I can assist you.

Comments (11)

Marzena Melby
Coldwell Banker Burnet Realty - Richfield, MN
Realtor, Twin Cities Minnesota Real Estate

No one likes to pay more than they have to, but it is a fair system.  If a buyer has 20% down, they do not pay PMI.  If he only has 10%, he pays the PMI and stll can buy the home.

Dec 22, 2009 12:17 AM
Gary L. Waters Broker Associate, Bucci Realty
Bucci Realty, Inc. - Melbourne, FL
Eighteen Years Experience in Brevard County

Very good explanation of PMI. This is definitely an expense buyers need to be aware of and I am sure the mortgage folks let them know up front.

Dec 22, 2009 12:31 AM
Sheldon Neal
Bergen County, NJ - RE/MAX Real Estate Limited - Maywood, NJ
That British Agent Bergen County NJ

Well it doesnt get much easier to understand than that now does it !!!

Great job Debe ! .... flagging this for feature ...

Cheers and Happy Holidays !!

Sheldon :o)

Dec 22, 2009 12:58 AM
Morgan Evans
Douglas Elliman Real Estate - Manhattan, NY
LICENSED REAL ESTATE SALESPERSON
PMI isn't something a lot of buyers know about upfront, but it sure does add up when they look at the costs of the mortgage. You have a great explanation of how it is calculated.
Dec 22, 2009 01:55 AM
Ann Allen Hoover
RE/MAX Advantage South - Hoover, AL
CDPE SRES ASP e-PRO Realtor - Homes for Sale - AL

Debe, this explanation makes it so easy to understand (and explain to someone else).  Thank you and I hope you are almost ready for Christmas! :o)

Dec 22, 2009 02:16 AM
Fred Carver Real Estate Consulant
Retired BC Realtor - Victoria, BC
Accredited Real Estate Consultant

Hi Debe....Great and easy to understand explanation of your private mortgage insurance..here home buyers can add the insurance premium to the mortgage, in order to keep their payment down. Mortgage insurance is required here with anything less that 25% down.

Merry Christmas from Fred Carver

Dec 22, 2009 02:23 AM
James K Barath, CMPS
Canopy Mortgage, LLC - Crown Point, IN
FICO Pro, Certified Military Housing Specialist

Great job on simplifying what PMI is and how to generically calculate the monthly premium. Just remember that PMI is also just the cost of leveraging other people's money because either the buyer does not have the full 20% down or chooses not to put more money down. In either case, PMI can be empowering to home buyers and home sellers.

Dec 22, 2009 04:43 AM
Karen Luke
South Metro Property Management, LLC - McDonough, GA
Henry County Real Estate

Great and simple explanation, Debe. 

Dec 22, 2009 05:34 AM
Joseph D. Federico
MVP Realty - Naples, FL
Southwest Florida Homes with Joe Federico

Debe-Great way of explaining PMI, Thanks for sharing it with us.

Dec 22, 2009 08:40 AM
John Cannata
214-728-0449 http://TexasLoanGuy.com - Frisco, TX
Texas Home Mortgage - Purchase or Refinance

Good lesson Debe. Im sure you get that question a lot, I know I do.

Dec 22, 2009 10:08 AM
Craig Rutman
Helping people in transition - Cary, NC
Raleigh, Cary, Apex area Realtor

OK, that was a wonderful explanation of PMI!

The chart you used made it so easy to understand.

Great job Debe!

Merry Christmas and Happy New Year to you my friend!

All the best to you in 2010!

Dec 22, 2009 12:31 PM