PMI: What is it and how much does it cost?



By Joe Giunta http://www.about-online-loans.com
August 10, 2001

PMI: What is it and how much does it cost?

PMI stands for Private Mortgage Insurance. If you are looking for a home loan and you have less than 20 percent of the homes value as a down payment, the home loan lender will require you to pay PMI. This is to protect the lender in the event that you lose your home due to missed payments, foreclosure, natural disaster etc. This is a required insurance for ALL lenders that will accept less than 20 percent down for a home loan. Also, there is no way for you to deduct PMI on your federal or state income taxes.

Why 20 percent down? Its simply a magic number to all institutional home loan lenders. Irs a number that has been derived after years of lenders losing money on defaulted home loans.

You can approximate what Private Mortgage Insurance will cost you by a few simple calculations. The most you will ever pay for PMI will be approximately 1% of the Loan amount. The least you will pay will be approximately .25% of the loan amount. For example, lets say you are purchasing a $200,000 home and you have $30,000 (or $15% of $200,000) to put down. This means you will be borrowing $170,000 from your home loan lender.

Therefore your Maximum Private Mortgage Insurance will be approximately:

$170,000 x .01= $1,700 per year - OR -
$1700 / 12 = 141.66 per month

The minimum Private Mortgage Insurance you will pay is approximately

$170,000 x .0025 = $425 per year - OR -
$425 / 12 = $35.42 per month

The more you have to put down, the less your PMI will be.

Find out from one of our home loan sources exactly what PMI you are required to pay. Their links are located on the top left of this page. Or learn how to avoid PMI by reading the article titled "PMI: How to avoid paying PMI" located on this site.






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