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02/07/2012 16:13:59 PM

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Private Mortgage Insurance (PMI)

Private Mortgage Insurance (PMI) protects lenders against loss due to foreclosure. Most lenders require PMI when the down payment is less than 20 percent. The PMI premiums are paid by the borrower and the policies are provided by private mortgage insurance companies. PMI is NOT mortgage life insurance. PMI protects the lender against loss. Mortgage life insurance protects your home and family by paying all or a portion of your mortgage in the event of your death.

Methods of paying for PMI have changed over the years. Prior to 1994, borrowers paid twelve to fifteen months' premiums at close of escrow. In 1994, borrowers could pay as few as two months' premiums at closing, and then pay a monthly premium with each mortgage payment. In 1998, a borrower could finance a single lump-sum mortgage insurance premium as part of the loan amount. In 1999, private mortgage insurance companies began borrowing Fannie Mae's new "Lowest-Cost MI" program. The new program allows borrowers to finance or pay up front a portion of premiums and, in return, receive a lower monthly premium rate. With each new strategy, home ownership has become more affordable for more people.

How much does PMI cost? The cost of PMI depends on the percentage of the down payment and the type of loan. Here are some sample PMI charges. These are guidelines only. Payment factors are subject to change. Please contact your lender or broker to get the cost of PMI on your loan.

LTV 30 year fixed 15 year fixed 30 year adjustable
95% 0.78% 0.72% 0.92%
90% 0.52% 0.46% 0.65%
85% 0.32% 0.26% 0.37%

Example: If you are getting a 30 year fixed loan, and are putting 10 percent down, the PMI premium is 0.52 percent. If your loan amount is $100,000, your PMI payment will be $100,000 x (.52/100)x 1/12 = $43.33 per month.