A Closer Look at Private Mortgage Insurance

Mortgages

If you are a first-time buyer, your lender may have talked to you about private mortgage insurance, or PMI. Private mortgage insurance, in simplest terms, is an insurance policy you will likely need to carry if your down payment equals less than 20 percent of the purchase price of the St. Johns County property.

Although many experts warn against the cost of PMI, for many home buyers, this insurance is well worth the expense because it affords them the ability to purchase a home.

Your lender sees PMI as a necessary protection against loss should you default on your mortgage. As a home buyer, PMI will likely make up a very small portion of your monthly mortgage payment, making this type of insurance a reasonable expense for first-time home buyers.

It is important to point out that not all lenders will require you to carry PMI if your down payment is less than 20 percent. Because of this, it may pay to do some comparison shopping for a home loan.

Is PMI Forever?

PMI isn’t a commitment for the life of the loan, though, as you will be able to drop this added expense when the equity in your home reaches at least 20 percent. You may accomplish your 20 percent equity goal in two different ways: you can continue to pay on the loan, or you can perform home improvements that increase your home’s equity.

For many homeowners, the latter scenario usually comes first, so it pays to contact your lender if you extensively remodel or update your home. The lender will likely send out an appraiser to assess the value of your home and remove the PMI insurance from your monthly mortgage payment if you meet the minimum 20 percent equity.

Although the thought of paying more money each month for PMI isn’t exactly a welcome thought, in today’s market it may be well worth the expense, given the low interest rates and large inventory of homes on the market.

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