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 |
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.
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