private mortgage insurance vs mortgage insurance premium

Private Mortgage

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Private Mortgage Insurance

Private mortgage insurance or also known as PMI is aninsurance policy used in conjunction with conventionalloans and they protect lenders from the possible risk ofdefault and foreclosure. Buyers who cannot make asignificant down payment or choose not to, can obtainmortgage financing at affordable rates. If you purchasea new home and want to put down less than 20%, yourlender will can minimize its risk by requiring that youbuy insurance from a PMI company before they willsign off on the loan. The cost you pay for PMI varies, butis typically 0.5 to 1% of the loan.

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If you pay monthly for PMI meaning you as the borrowerpay a premium payment monthly until your PMI is eithercanceled or terminated. Your PMI can be terminated afteryour balance has reached 75% of the original homevalue. You can put in a request to cancel your PMI onceyou have reached 25% of the home purchase price orappraised value. A couple other types of privatemortgage insurances include, a lender paid PMI alsoknown as a LPMI, when the lender pays the PMI the costis included in the mortgage interest rate. Another type ofPMI is single premium PMI, this is when you would payfor the mortgage premium upfront in a giant lump sum,at either closing or financing it into the mortgage.



Mortgage Insurance Premium

Mortgage insurance premium also known as a MIP, isan insurance policy used in conjunction with FHAloans. If your down payment is less than 20% of thepurchase price the FHA will require either an upfrontMIP at the time of closing, or an annual MIP that wouldbe calculated yearly and due to be paid in 12installments. The rate for an annual MIP will dependon the length of your loan and the loan-to-value ratio.If your loan balance exceeds $600,500, you'll mostlikely owe a higher percentage.



Some loans with the FHA include case numbers, ifyour loan has a case number that was assignedbefore June 2013 the FHA will require that your MIPis paid in monthly payments for a consecutive 5years before the MIP can be dropped. Your MIP canonly be dropped if your loan term is either greaterthan 15 years or if your balance reaches 75% of theoriginal purchase price of the home- which can befound in your mortgage documents. If your FHAloan was after June 2013 other rules will apply.



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Justin McHood is Americas MortgageCommentator and has been providing

Mortgage commentary for over 10 years.

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private mortgage insurance vs mortgage insurance premium

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