Private mortgage insurance, commonly abbreviated as PMI, is a monthly payment that protects lender against a loan foreclosure. For most loan types, PMI is required if you make a down payment less than 20% of the loan value.
How Long Do I Have to Pay PMI?
Not forever! If PMI is required for your loan, you will pay monthly until your remaining loan balance hits 78% of the original value. This isn’t great, but at least there’s an end in sight.
Oh Jeez. Is It Expensive?
Over time? It can be a pain. PMI can cost you anywhere from 0.5 – 1% of your loan value. If your $300,000 loan has a 1% PMI cost, that’s an additional $250 per month on top of your mortgage payment, and an extra $3000 per year.
How Can I Get Out of Paying PMI?
The short answer is to pay at least 20% of your loan in a down payment, but we know that isn’t realistic for everyone. One way around it is to take out two smaller loans instead of one big loan. Making a minimum down payment on those two loans will negate the need for PMI, but those loans may have higher interest rates than the one large loan. It depends on what would work best for you.
There are also other loan options if you’re working with limited income. FHA loans only require a 3.5% down payment, but you’re likely to be faced with a higher interest rate.
Explore all your options with a licensed loan officer to secure the loan that’s right for you. Contact our team today to get a free, no hassle, no commitment rate quote in just minutes!