A mortgage is a form of insurance that protects a lender if the borrower defaults on payment. Currently, if in buying a home you pay a down payment valued below 20 percent of the total value of the property, a mortgage loan become necessary. This post seeks to answer the common question; how much is private mortgage insurance?
How Much Do You Pay for Private Mortgage Insurance?
First of all, private mortgage cover fees vary depending on an array of factors. For example, the value of the loan you take to purchase a home will determine how much you pay for the mortgage. Moreover, the amount of down payment will affect the premium you pay. If your down payment is small, the PMI fees should be typically higher, because the lender’s risk is bigger.
To this end, private mortgage premiums range from 0.3 to 2 percent. This implies that the amounts of premiums you pay are determined by multiplying the percentage by the total value of the mortgage loan extended. Note that the credit insurer applies this value on an annual basis. Of course, you can pay on a monthly basis.
For example, if you are given a mortgage of $250,000 and you make a down payment that is less than 20 percent of the total property value (say 10 percent), you would be charged an annual premium of a certain percentage of the total loan, as agreed with the insurer.
In addition, the bigger the loan-to-value ratio, the higher the premium you pay calculated as a percentage of the credit amount. For instance, if you are give a mortgage by your insurer and you pay 14 percent of the initial mortgage amount, the loan-to-value ratio would be 86 percent. As such, you premiums will be lower than that those charged on someone who paid 10 percent down payment.
Note also that PMI fees are tax-deductible. It is therefore important to talk to your insurer to understand how the taxing is done. This will ensure that you track your payments. It is especially imperative that you keep good track of your premium payments. Legally, once your loan-to-value reaches 80 percent, you should stop making premium remittances and inform your lender accordingly.
All in all, a private mortgage can be beneficial if managed well. Talk to your lender and seek to understand how much is private mortgage insurance and how long it would take to clear the loan. Ensure you track your premium payments.