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Mortgage Insurance Premium: Are
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Mortgage Insurance Premium:
Are You Wasting Your Money?
In
the past, lenders did not allow a loan
that was more than 80% of the home's
appraised value because of the significant
increase in default rate associated with
high loan-to-value mortgage. Consequently,
many individuals with down payment lower
than 20% found it impossible to get a
lender for finance the purchase of a home.
But through the help of private mortgage
insurance (PMI), many of these individuals
became homeowners. PMI, however, is not a
service for free. Like any type of
insurance, policyholders have to pay for
the premium. How much premium? That is
something worth looking into. It will give
you an idea of whether you are just
wasting your money or not.
To understand better the cost of
mortgage insurance premiums, there are 2
issues we have to discuss: the purpose of
private mortgage insurance and how
mortgage insurance premium is
computed.
Private Mortgage Insurance
Offered by the private insurance
market, PMI automatically applies to
borrowers with less than 20% down payment.
While the borrower pays the premium, PMI
protects the lender in case the borrower
defaults. The borrower does not receive
any benefits from this kind of insurance
aside from getting mortgage loan approval
with down payment less than 20% of the of
the home's appraised value. You PMI
premium can be as high as $124 a month or
$1488 a year for a 7.5% fixed-rate,
30-year mortgage on a $200,000 home aside
from the mortgage you have to pay for the
house.
Private
Mortgage Insurance Premium
The size of the down payment dictates
how much the borrower should pay for his
or her PMI premium. For a 30-year mortgage
with 85% loan-to-value ratio (15% down
payment), the PMI premium is 0.32%/12 of
the original mortgage amount. The premium
gets higher as the loan-to-value ratio
increases. With the same mortgage term and
interest rate, the PMI premium for a loan
with 90% loan-to-value ratio (10% down
payment) is 0.52%/12 of the original
mortgage amount. For a 95% loan-to-value
ratio (5% down payment), the PMI premium
surges up to 0.78%/12 of the original
mortgage amount. These rates apply for the
first 20 years of the term. In the 21st
year up to the end of the term, the PMI
premium goes down to 0.20%/12 of the
original mortgage amount regardless of the
size of the down payment. For all the
cases, the mortgage insurance company
usually charges an escrow equivalent to 2
months' PMI premium at the beginning of
the mortgage payment.
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article is continued
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More
information here about insurance
when building your own
house:
Insurance for Fire Only
In this present age of disasters and unforeseen events occurring, it is important to have a good, quality insurance plan. That is why insurance companies have policies that cover car damage, property, house insurance (fire only, robbery, etc.) personal self, and even life insurance. These insurance plans usually allow the owner to be less worried and concerned about damages to the car, property, or whatever it is he insures, including his own life, since there will be just and proper compensation for damages and/or losses. .......
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