Question:

What is the cost of private mortgage insurance (PMI)?

Answer:

The cost of private mortgage insurance (PMI) will be usually half a percent of the loan, and is not tax deductible. You will need to bear the cost of private mortgage insurance (PMI) if you are contributing less than 20% towards the value of your desired home.

Is the cost of private mortgage insurance (PMI) the same for everybody?

In fact, there are certain factors and ways to affect the PMI payment. For example, sometimes taking an 80-10-10 loan will get your monthly PMI payments reduced. Use a calculator to see if taking a first and a second mortgage will prove cheaper than using a PMI.

Also, a law enacted in 1999 obligates lenders to inform borrowers when 20% of equity will be reached so that PMI can be dropped. With borrowers with little or no late payments, lenders are demanded to automatically cancel the cost of private mortgage insurance (PMI) from the monthly payments.

High risk borrowers, though, do not get this benefit. Under the same law, lenders are required to drop PMI payments when 50% of equity is reached. High risk borrowers (those taking alternative documentation loans, or those with bad credit) need to keep carrying the cost of private mortgage insurance (PMI) until principal is paid in half.

Our advice: Be sure to ask your lender about FHA loans. FHA loans have very competitive interest rates because the loans are insured by the US Federal Government. Even if you have had serious credit problems, such as bankruptcy, it is easier to qualify for an FHA loan than a conventional loan. Also, taking an FIXED rate loan while the interest rates are still low is a smart idea. Check your eligibility here:

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Common misspellings: mortage and morgage