The Channel you have requested is no longer available.

The Pros and Cons of Private Mortgage Insurance (PMI)

The Pros and Cons of Private Mortgage Insurance (PMI)

 

 

    Although the term "PMI" ... Private Mortgage Insurance ... is seen and heard frequently, there remains a shroud of mystery surrounding it ...

     When I first speak with potential Chicagoland - IL/WI Borrowers, they sometimes have a negative reaction to my introducing the topic of Private Mortgage Insurance. Their faces give their thoughts away, as they look like they just swallowed some awful tasting medicine.

     But I find many times, when asked ... they really don't know or understand what PMI actually is.  They don't know its strengths or weaknesses.  Or what value and service it can or can't provide them.  A discussion always follows ...

     As with most Mortgage/financial tools, there are pros and cons to Private Mortgage Insurance. Unfortunately for Borrowers though, there is no simplistic, broad, finite answer I can provide when they ask, "Should I or shouldn't I utilize and pay Private Mortgage Insurance"?  

   
 (I add:  If anyone expresses a snap judgment or opinion regarding the use of PMI ... run!)

     Prior to making a decision pro or con:  Some math must be done.  Then some comparisons, as the Borrower and I must discuss the pros and cons of utilizing (and not utilizing) PMI.  The Borrower must then make a decision based on their specific needs/finances.  PMI is just not a "one-size-fits-all" thing.

     In most cases:  I find that the real option for my Borrowers is not IF Mortgage Insurance will be required.  It's more a question of what their PMI will cost?  Still, there's no quick easy answer for that either.  

     Why?  The answer is always directly tied to the finances and needs of the individual(s) applying for Mortgage.  The mortgage applicant(s) is the only one that can ultimately judge the merits of their using PMI (or not) ... and at what level/cost.  

     
So what facts and information are needed to make a sound decision?  

     

Having the answers to the following will help:

  • What is Private Mortgage Insurance?  
  • Why is PMI needed by some Borrowers? 
  • What value dies PMI offer when financing?
  • What PMI options are available?  
  • How is PMI calculated?
  • How does PMI differ from Title Insurance or Homeowners Insurance?
  • How long do I pay PMI on my loan?
  • How do I "get rid" of PMI?

     

     *  For Conventional Loans Only:  Here are some facts you should know regarding Private Mortgage Insurance:

  1. Private Mortgage Insurance is required when a Mortgage Loan greater than 80% of Value/Sales Price is made.  (In other words, if LESS than a 20% Down Payment is made.)
  2. Mortgage Insurance is provided and available through several privately owned companies, thus the term: Private Mortgage Insurance (PMI)
  3. Borrowers pay their Lender monthly for their PMI costs (within their monthly mortgage payment).  Their Lender, in turn, pays out the same amount to the Private Mortgage Insurance Company
  4. In most cases, there are other plans available for Annual OR upfront payments of PMI 
  5. Lenders cover their Loan Risks (limit their risks) to an 80% level, (Outstanding Loan VS Property Value), known as Loan-to-Value (LTV) with the implementation of Private Mortgage Insurance
  6. Considering a Lender's risk of Lending more than 80% of Value/Sales Price, with Loan Programs allowing as low as 3% Down Payment:  There are varying stages or levels of Private Mortgage Insurance charges/costs.  They are based on the increments of Down Payment percentages made by the Borrower (3%, 5%, 10%, and 15% Down Payment).  
  7. The greater the Down Payment percentage, the PMI is charged/calculated at a lower percentage of the loan amount (thus lower Monthly Payments toward PMI)
  8. Credit Scores affect the cost of Private Mortgage Insurance.  Higher Scores = Lower Costs.
  9. On Conventional Loans:  Lenders can require the existence of PMI until the Loan Balance is paid down to 80%* of the original Sales Price/Value, and MUST release a Borrower from paying any Private Mortgage Insurance when the loan is paid down to 78% of original Value/Price.  (* Borrowers must request the removal of PMI at the point a loan is paid down to 80%.  Lenders must remove PMI at the 78% level.)
  10. Refinancing of a loan that has PMI currently, is a common way to eliminate/reduce substantially the cost of Private Mortgage Insurance.  
  11. Refinancing is especially beneficial when the Interest Rate on the Mortgage Loan can also be reduced at the same time.  (With Interest Rates currently so low (as of 8/31/2016), Refinancing for this purpose is extremely favorable and popular).


     As you can see from the info above, arriving at a decision regarding the use of Private Mortgage Insurance can be somewhat challenging for Borrowers. So it's not unusual for me to hear one or all of the following: 

  • Wow! 
  • Can I avoid PMI?
  • Can I limit its costs?
  • How can I do that? 


     The answers to the above questions will be provided in my next post.  But it's important to point out here: 

  • There IS a difference between FHA and Conventional Mortgage Insurance.  (Makes the decision even more interesting!)
  • FHA Mortgage Insurance will be addressed in a separate blog (to follow
  • Private Mortgage Insurance may be a sound viable solution if you're a hopeful home buyer wanting to buy with a small Down Payment  
  • It may be the ONLY option for you if you're a Borrower hoping to buy/Refinance with less than 20% down 
  • Entering the Chicagoland/IL/WI housing markets while interest rates are so low, borrowing money is so cheap, rents are rising quickly, and home prices may still be in reach can offset the cost of paying PMI.  Only you can decide if it's a beneficial decision for you to do so.

     

     And again, the only way to arrive at a sound decision is to contact your Chicagoland Mortgage Originator, ask questions, and gain the facts and info you need.
 
     If you're considering the purchase and/or financing of a home ... and the possible use of Private Mortgage Insurance:  Seek all the facts and answers you need to make an informed decision right for YOU ...  
 
 
 
 
     *  Hoping to Buy or Refinance a Home in New Lenox or elsewhere in the great Chicagoland area ... Illinois or Wisconsin?  Contact Me.  I'll put my 40+ years of Mortgage experience and expertise hard to work on your behalf.
     I can be easily found at: 
 
Gene Mundt
Mortgage Originator - nmls #216987 - IL Lic. 031.0006220 - WI Licensed
 
American Portfolio Mortgage Corp.
nmls #175656
 
Direct: 815.524.2280
Cell or Text: 708.921.6331
eFax: 815.524.2281
 

 

 

If you or anyone you know is looking for sound experienced mortgage advice and service, please contact me. I'd be honored to be of service.

 

 

 Twitter Account of Gene Mundt, Mortgage Lender   LinkedIn Account of Gene Mundt, Mortgage Lender   Facebook Acct. of Gene Mundt, Mortgage Lender   Pinterest Acct. of Gene Mundt, Mortgage Lender   

 Trulia Acct. of Gene Mundt, Mortgage Lender   Zillow Acct. of Gene Mundt, Mortgage Lender     Gene's Chicagoland Blog/Gene Mundt, Mortgage Lender  

    

 

Gene Mundt

Mortgage Originator  -  NMLS #216987    

IL Lic. #0006220  -  WI License

American Portfolio Mortgage Corp.

NMLS #175656

                                                                    

 

Gene Mundt, Mortgage Originator,  40+ years of #mortgage experience, will offer you exemplary mortgage service and advice when seeking:  #Conventional, #FHA, #VA, #Jumbo, #USDA, and Portfolio Loans in #Chicago and the greater Chicagoland region, including:  The #Lincoln-Way Area, #Will County, (#New Lenox, #Frankfort, #Mokena, #Manhattan, #Joliet, #Shorewood, #Crest Hill, #Plainfield, #Bolingbrook, #Romeoville, #Naperville, #Wilmington, #Peotone, etc.), #DuPage County, the City of Chicago, #Cook County, and elsewhere within IL and Wisconsin. 

Contact Gene Mundt, Mortgage Originator Today!

 

Your Referrals & Testimonials are Always Greatly Appreciated!

Email Me .. to be added to my Mortgage & Real Estate Newsletter

The Pros and Cons of Private Mortgage Insurance (PMI)
share
The Pros and Cons of Private Mortgage Insurance (PMI) Although the term "PMI".. Private Mortgage Insurance.. is seen and heard frequently, there remains a shroud of mystery surrounding it.. When I first speak with… more
NOW May Not Be the Perfect Time to Buy, but it IS the Perfect Time to…
share
NOW May Not Be the Perfect Time to Buy, but it IS the Perfect Time to Start Your Preparation A recent survey performed by Fannie Mae reported that a majority of Millennials feel that owning a home makes more sense that renting does. And a… more
Schools Back in Session on August 24th, 2016 for Manhattan School…
share
Schools Back in Session on August 24th, 2016 for Manhattan School District 114 Kids School will soon be back in session for children attending Manhattan School District 114 schools ( Manhattan, IL ).. my hometown. The… more
Closing Cost Options That Help Buy or Sell a Home
share
Closing Cost Options That Help Buy or Sell a Home The accumulation of a Down Payment is often a First-Time Homebuyer's primary focus once the decision to buy has been made. Monetarily and mentally, the down payment becomes the one… more
4th of July Fireworks and Celebrations in Will County - 2016
share
4th of July Fireworks and Celebrations in Will County - 2016 The skies across Will County will be lit-up with fireworks, the streets will be filled with marching bands and floats, and exciting celebrations of all kinds will be taking place… more
Good Things Come in Small Packages: Summer 2016 in Manhattan, IL
share
Good Things Come in Small Packages: Summer 2016 in Manhattan, IL It's been said that "good things come in small packages ".. and that saying definitely applies to small communities.. The Village of Manhattan, IL is a… more
Choosing Your Neighborhood When You Buy
share
Choosing Your Neighborhood When You Buy Not too long ago, my wife received a call from o ne of our neighbors. The neighbor was asking Marilyn to come over immediately, as she had cut herself and needed help. She wanted to… more
Can I Sell and Buy a Home at the Same Time? What You Need to Know
share
Can I Sell and Buy a Home at the Same Time? What You Need to Know Back in the late 70's when I started in mortgages, it was fairly commonplace to have "domino" closings take place… more
How Prepared are You?
share
How Prepared are You? The question above is a timely one. Why? We're entering Tornado Season again in the Chicagoland area.. Did you know.. In an average year, 1200 tornadoes are reported? That a tornado has the capability… more
Mortgage Change With Real Impact: FHA to Loosen Standard Regarding…
share
Mortgage Change With Real Impact: FHA to Loosen Standard Regarding Student Loans In recent months, it appears that mortgage lending practices are trending in favor of Borrowers.. This is great news after years of… more