How long will I pay private mortgage insurance?
Private mortgage insurance — better known as PMI — doesn’t protect you. This insurance protects your lender in case you stop making your monthly mortgage payments. It’s a fee that home buyers have to pay when they can only come up with a smaller down payment when taking out a mortgage loan.
In general, you’ll have to pay PMI if you put down less than 20 percent of your home’s final sales price. You’ll pay your PMI fee as part of your monthly mortgage payment.
How much you pay for PMI varies. Usually, it depends on the size of your down payment and the amount of money you are borrowing. Typically, you’ll pay from 0.3 percent to 1.15 percent of the original loan amount in PMI each year.
If you are borrowing $200,000, then, and you haven’t put down at least 20 percent, you can expect to pay from $600 to $2,300 a year in PMI.
Your lender will divide your PMI fee into your 12 monthly payments. If you owe
$2,300 a year in PMI fees, you’ll pay about $191 a month extra with each mortgage payment.
There is some good news: PMI isn’t permanent. When your loan-to-value ratio hits 80 percent, you have the right to contact your lender and request an end to your PMI payments. For instance, if your home is worth $200,000 and you owe $160,000 on your mortgage loan, your loan-to-value ratio is now at 80 percent and you can ask your lender to cancel your PMI payments.
You will have to keep track of this information, though. Federal law says that lenders have to inform you at closing how many years it will take for you to reach that important 80-percent level. But you will have to contact your lender once you reach 80 percent.
If you don’t do this? It doesn’t mean that you’ll continually pay PMI. Federal law also states that lenders must cancel your PMI payments on their own when your loan-to-value ratio hits 78 percent.
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