About Private Mortgage Insurance
Private mortgage insurance (PMI) is a type of insurance
that helps protect mortgage companies against losses due to
foreclosure. This protection is provided by private mortgage
insurance companies and allows mortgage companies to accept
lower down payments than would normally be allowed.
PMI also enables mortgage companies to grant loans that
would otherwise be considered too risky to be purchased by
third party investors like the Federal National Mortgage
Association (FNMA) and the Federal Home Loan Mortgage
Corporation (FHLMC).
The ability to sell loans to these investors is critical
to maintaining mortgage market liquidity, which in turn,
allows mortgage companies to continue originating new loans.
Americans Earning Less, Saving
Less
Why is PMI needed? Relative to the growth in home prices
over the last quarter century, Americans are earning less
and, as a result, saving less. This means many families
today are being forced to wait longer than their parents and
grandparents before buying their first home.
One way to reduce this wait is through PMI – and many
families are taking advantage of it. Recent government
statistics show that one of every two homebuyers obtained a
low down payment loan; and many of them used private
mortgage insurance (PMI) to realize their homeownership
dream.
The Importance of Recognizing When
to Get Rid of PMI
Most lenders require Private Mortgage Insurance (PMI) if
the borrower has less than 20% equity in a home. One of the
more difficult things for most homeowners is determining
when their home equity has risen above the 20 percent point.
Failure to recognize this significant event will leave you
paying a higher mortgage payment than you need to be paying.
In fact, with appreciation in your home value, you might
already have more than 20% equity and not know it! The best
way to determine the value of your home is through an
appraisal. While the Homeowners Protection Act of 1998
requires that lenders drop PMI payments when the loan to
value ratio conditions have been met, most require an
appraisal to support the homeowner's assertions of the value
increase.
Getting an appraisal now and dropping your PMI payments
will significantly reduce your monthly mortgage payments –
and save you thousands of dollars |