Private Mortgage Insurance, also known as PMI, is a supplemental insurance policy you may be required to obtain in order to get a mortgage loan. PMI is provided by private (non-government) companies and is usually required when your loan-to-value ratio — the amount of your mortgage loan divided by the value of your home — is greater than 80 percent.
PMI isn't a bad thing — it allows you to make a lower down payment and still qualify for a mortgage loan. In fact without PMI, many of us would not be able to purchase our first home.
Your PMI premium is fixed based on plan type (loan-to-value ratio, loan type, loan term, etc.) and credit. There are several options for PMI: Borrower Paid Monthly Insurance, Lender Paid Mortgage Insurance, Single Premium Borrower Paid Mortgage Insurance and the list goes on.
If you have good credit, one of the more popular mortgage insurance options is Lender Paid Mortgage Insurance or LPMI. When you opt for LPMI, you are taking a slightly higher interest rate over the life of the loan instead paying a separate monthly mortgage insurance premium. Depending on your credit score and loan-to-value ratio, your interest rate may only be about .25% higher in rate and you don't have to pay any monthly mortgage insurance. Avoiding a monthly insurance premium helps lower your monthly payment.
If you're pretty savvy about the mortgage lingo and want to get an idea of what the borrower-paid monthly mortgage insurance (BPMI) might be on your loan, you can click here to visit a third party site to calculate your mortgage insurance premium. Make sure to select BPMI (Monthly), Non-Refundable and Constant Renewal Option. If you need help calculating your mortgage insurance premium, please contact us. Your Mortgage Consultant will help you choose the type of mortgage insurance that's best for you.