PMI Rates - What You May Not Know
The whole concept of PMI is irritating to me. Where else do you pay the insurance premiums to cover someone else’s risk? That’s exactly what’s happening with private mortgage insurance.
PMI is required when you buy a house with a mortgage but don’t have 20% for a down payment. It is actually insurance for the lender, but you pay the premiums. Nice, huh? In the event you default, the insurance pays the lender the difference between 20% and what you put down (they also still get to repossess the house of course).
Rates Vary Based on Down Payment
What I didn’t know until very recently is that the PMI rates you pay vary depending on how close you come to putting 20% down on your house. The closer you are to 20%, the less you pay. I know it makes sense, but it just never occurred to me.
You can use this quick estimate to figure your approximate premium:
If you’re down payment was: Divide your mortgage amount by:
5% 1500
10% 2300
15% 3700
Here’s an actual rate card from a PMI provider, but it’s a lot more detailed.
Canceling PMI
It used to be that insurers could keep charging you PMI even after you owned 20% of your house. That changed in 1999, though, and now insurers have to automatically cancel PMI once you get to 22% (with some exceptions, see below). But why pay those extra premiums? Pay attention and cancel your PMI as soon as you get to 20%. You have to request the insurance company cancel your coverage in writing.
Insurers don’t have to automatically cancel your coverage if any of these are true:
- It’s a VA or FHA loan
- You’ve been late on a payment
- Your loan was originated before July 29, 1999
