What is PMI and How to Get Rid of It

What is PMI and How to Get Rid of It

What exactly is PMI and how can I get rid of it? Real estate lenders are a curious lot. It seems they’re willing to offer just about anyone money. Assuming a half-way decent credit rating, any potential home buyer can secure financing for a house. Why? Because these transactions are guaranteed by a very precious asset: the home itself. If a customer defaults on a home loan, the risk for the provider is often only the difference in the worth of the property and the amount outstanding on the mortgage, less the figure it costs them to reclaim and resell the house. As a result, lenders are very cautious about financing higher than a specific portion of a home’s value. Traditionally, this has been eighty percent. The buffer this gives the lender helps ensure that their deficits from foreclosures are kept to a minimum. In the last few years, conversely, it is progressively more common to see home buyers using down payments of 10, 5 or even 0 percent. Of course, financing this much provides the lenders with much more risk. To offset this threat, these transactions often require Private Mortgage Insurance or PMI. This supplemental policy protects the bank in case a debtor defaults on the loan, and the value of the property is less than the loan balance. PMI has become a large money maker for the mortgage loan providers. The cost of this insurance – often $40-$50 per month for a $100,000 house – is often combined within the mortgage payment. Due to the size of the entire charge, this additional charge is often unnoticed. Homeowners...

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