How Does Private Mortgage Insurance Work?
It’s no secret there are many different types of costs associated with purchasing a property, and sometimes it can get complicated to fully understand the required costs when determining your budget and applying for a mortgage. If you are interested in buying a home with a conventional loan, you might be required to pay for private mortgage insurance, which will increase the price you pay for a home. If you are buying a home in Palm Beach, Tri-County, or Broward County, Florida, and have questions about your mortgage, CTC Mortgage is here to help. Continue reading to learn more about how private mortgage insurance works.
Understanding Private Mortgage Insurance
When a home buyer puts down a down payment of less than twenty percent, a mortgage lender will require private mortgage insurance, or PMI. Private mortgage insurance also is typically required when a borrower refinances a mortgage with a conventional loan and has built up less than twenty percent equity in the home’s value. PMI is intended to protect a mortgage lender if a borrower is unable to make mortgage payments. Private mortgage insurance requires a borrower to pay a monthly premium to an insurer, which will go towards part of the balance that is due to the lender in case a borrower defaults on the loan. Although PMI is an additional cost to a borrower, it can help someone qualify for a home loan who may not typically be eligible for one.
What Does Private Mortgage Insurance Usually Cost?
The total cost of private mortgage insurance will vary because it is based on several factors. Private mortgage insurance will depend largely on the amount you take out for a mortgage, and the more money that you borrow, the higher your PMI cost will be. Additionally, the down payment amount you pay will determine how much your PMI will cost; essentially, the higher your down payment is, the less you will have to pay for private mortgage insurance. Another factor that will determine your PMI costs is your credit score, the higher your credit score is, the less expensive your private mortgage insurance premiums will be. Finally, another factor that will determine your PMI costs is the type of mortgage that you select; private mortgage insurance will be less expensive if you opt for a fixed rate mortgage, and more expensive with an adjustable rate. This is attributed to the chance that adjustable rate mortgage rates can fluctuate and pose a higher risk than an adjustable rate. The good news is that private mortgage insurance will no longer be required to be paid for by a borrower when the mortgage balance reaches 78 percent of the original purchase price with consistent mortgage payments.
If you are buying a home in Palm Beach, Tri-County, or Broward County, Florida, contact CTC Mortgage today for a consultation.
