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Mortgage Insurance: Private Mortgage Insurance
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You can avoid paying private mortgage insurance altogether while still putting no money down by utilizing a combo. If you keep your first loan at 80% LTV or less, and add a second loan of 20% or less, you can still attain 100% financing without paying PMI. Along with that, you’ll likely obtain better financing by splitting the loan up. Learn more about mortgage combos and blended rates.
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According to the recently passed Homeowners Protection Act, private mortgage insurance is automatically canceled for borrowers on single-family, owner-occupied homes when the loan balance reaches 78% of the original property value. The law ... allows borrowers with good repayment history to request cancellation of MI when their loan balance drops to 80% of the original property value. For more information on the Homeowners Protection Act, contact your lender.
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All the confusion led to the Homeowners Protection Act of 1998 which established rules regarding termination of private mortgage insurance. The new law required home mortgages signed on or after July 29, 1999 to automatically terminate PMI once the homeowner reached 78% LTV, or gained 22% equity in their home, based on the original property value. The law ... allowed homeowners to request the termination of PMI once they gained 20% equity in their home, or 80% LTV.
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Private mortgage insurance (PMI), known as mortgage guaranty insurance, guarantees that, in the event of a default, the insurer will pay the mortgage lender for any loss resulting from a property foreclosure up to a specific amount. PMI, which is purchased by the borrower but protects the lender, is sometimes confused with mortgage insurance, a life insurance product that pays off the mortgage if the borrower dies before the loan is repaid. Banks generally require PMI for all borrowers with down payments of less than 20 percent.
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"This new tax deduction will make loans with private mortgage insurance even more attractive for home buyers who are on the cusp of homeownership," said Suzanne Hutchinson, MICA Executive Vice President. "The wide-ranging group of organizations that support this important tax break will certainly be working to extend the deduction beyond 2007."
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Whatever you call it, when you're buying a home and have less than a 20 percent down payment to put on a house, you are required to pay for private mortgage insurance. Generally, the larger the loan amount, the more risky it is to the lender. Private mortgage insurance is protection for the lender against a borrower defaulting on the loan. If the borrower can't pay back the loan, the lender has a way to get its money back.
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