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MEL SMITH

New York and New Jersey Mortgage Tip: What is Private Mortgage Insurance?

Monday, October 26, 2015 - Article by: MEL SMITH - Meadowbrook Financial Mortgage Bankers - Message

PMI or Private Mortgage Insurance is insurance designed to benefit the mortgage lender, and not the consumer. It's an allowance usually needed when your down payment on the purchase of a home is less than 20%. In these scenarios the lender is taking on additional risk by undertaking a lower amount of upfront money towards the purchase. They will most often call for the borrower to acquire private mortgage insurance.Private mortgage insurance pays the lender a percentage of the balance of the principal due if you discontinue payments on your loan. PMI will normally pay the difference between a conventional 20% down payment and the amount the borrower paid upfront.A loan default prompts the policy payout as well as foreclosure proceedings. This is with the intention that the lender will repossess the home and then sell it in an attempt to regain the balance of what is due.The cost of private mortgage insurance is based on the size of the loan that you are applying for, your down payment amount, and current credit score. The average annual cost ranges from 0.5% to 1.0% or more of the loan amount, which is divided by 12 and added to your monthly payment.As a consumer you pay a monthly premium to the insurer who protects the mortgage lender in the event you default. This option might allow you to purchase the home that you desire.

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