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When purchasing a standard mortgage from a private lender, you may be required to purchase private mortgage insurance (PMI). However, PMI can be costly, usually charging you around 0.5% to 1.0% yearly interest on your loan amount. The interest rate may seem like a small, even negligible amount of money, but if you are purchasing a mortgage for a home, it can be a substantial sum of money.
For example, if you purchase a $500,000 home, you could be charged $2,500 and $5,000 a year in mortgage insurance, or approximately $210 to $420 every month. Even for one year of payments, this can be a significant chunk of your money and added together with all of your other bills and expenses; it can add up.
So, it is no wonder why people want to get rid of PMI as quickly as possible. Luckily, you can take specific steps to eliminate PMI as promptly as possible. In this article, we will go over what PMI is, its cost, and how to get rid of it.
Private mortgage insurance is an additional payment to your mortgage that usually ranges between 0.5% to 1.0% of your mortgage balance every year. In addition, PMI is in place to protect your private lender if the home buyer defaults on their mortgage.
In most cases, homebuyers who use a standard mortgage with a down payment of less than 20% must purchase PMI. In addition, PMI costs depend on the amount of risk a lender has to take on: low risk means lower costs, while high risk usually equates to higher PMI costs.
Factors that can affect your PMI costs include your down payment amount, credit history, and type of loan.
It is no surprise that anyone that can get rid of PMI generally wants to. Paying for a mortgage alone can be a heavy burden without the weight of additional costs that PMI brings about. There are four standard ways to get rid of your PMI:
PMI can be an extra cost that everyone wants to avoid if they can. Before purchasing a home, consider factors like your credit score, your planned down payment, and the type of loan you are considering purchasing to see if you can do it beforehand to avoid or reduce PMI costs. If you have PMI, try getting over the 20% mark as quickly as possible, or consider refinancing or reappraisals if the housing market is doing well.