What is Private Mortgage Insurance?

Private mortgage insurance (PMI) is a term many Brooklyn home owners have heard but few understand.  Unfortunately, even more home owners have paid PMI premiums long after it was needed because they didn’t know they could cancel.

Here are answers to questions I am most frequently asked about PMI:

What is Private Mortgage Insurance (PMI)?

As its name states, PMI is insurance.  Like all insurance, it protects someone against the loss of something.  For example, car insurance protects the car owner against the loss of his car.  In this case, PMI protects lenders against the loss of their money if borrowers fail to repay their mortgage.

If you buy a house and make a down payment of less than 20%, lenders require that you pay for PMI insurance.  Let’s use an example of Jane buying a Brooklyn  home for the purchase price of $400,000.  She has $40,000 for a down payment, which is 10% of the purchase price. That means she has to pay for PMI.

What’s the cost of PMI?

PMI premiums vary depending on the mortgage insurance company you use.  Generally, they range from .5 to 1% of the amount of your home loan.  You have the option of choosing the insurance company you would like to work with, and there are many to choose from.  As with any insurance, you should shop around to find a company with which you feel comfortable.

Do all loans require PMI?

No, if you put down 20% or more of the purchase price of your Brooklyn home, you are not required to buy PMI.

I’ve made mortgage payments for 2 years why do I still need PMI?

Understanding how your loan works is very important.  The first several years of your mortgage payments go toward paying down the finance charges (interest) on your home loan.  PMI is based on the principal (the amount you actually borrowed), not including finance charges.  Because of this, it can take many years to reach the point where you’ve paid off 20% of the price of your home.

How do I know when I can stop paying for PMI?

The Homeowners Protection Act (HPA) requires lenders to inform a buyer at closing that PMI can be cancelled and at what point in the loan this will occur.  However, it is still your responsibility as the home owner to request cancellation once you qualify.  In other words, no one is going to automatically cancel your PMI when you’ve paid off 20% of the price of your home.  You must do that or you continue to pay.

What if I forget to ask to have my PMI cancelled?

If you do not ask for PMI to be cancelled, you’ll continue to pay PMI until you’ve paid off 22% of the price of your home.  Fortunately, the lender is required to automatically cancel PMI once you’ve reached the 78/22 point, which means you’ve paid off 22% and only owe 78% of the price of your home.  However, if your loan isn’t current or has more than one late payment in the past year, you still must pay for PMI.

What if I have had late mortgage payments in the past?

As long as you have had no more than two late payments in the past two years, the lender will allow you to cancel.

What if I have had more than 2 late mortgage payments?

The lender will require you to maintain PMI until your home loan reaches 77/23, at the earliest.  In some cases, the lender can require you to maintain PMI up to the halfway point in your home loan, at which time they are required by HPA to cancel.

Will I ever have to get PMI again for my Brooklyn home loan?

No.  Once PMI has reached the cancellation point and has been cancelled, the lender can’t require you to purchase additional PMI.  The only way that can change is if you refinance your current home loan.

If you’re looking for an experienced, energetic, resourceful  Brooklyn real estate agent or just have a few real estate related questions,I’m happy to help. Give me Charles D’Alessandro your Brooklyn Realtor® with Fillmore Real Estate a call at (718) 253-9600 ext.206 or email me at [email protected]

As a life time Brooklynite I have seen times change, but not always for the best.  Consider the change we’ve seen in attitudes toward Brooklyn real estate over the last few decades.

Brooklyn Home Owners used to love their homes because they were their safe havens.  Many now only worry about whether or not their houses will appreciate enough in value to allow them to upgrade to McMansions or refinance to buy luxury vacations in Hawaii.

What’s your stance on the Brooklyn real estate you own or wish to own some day?   Is it a house or a home to you?  There’s no right or wrong answer to this question, simply a varying point of view.

It’s a house if you:

• Bought it because you want to build equity
• Value it most because of its monetary value
• Worry primarily about it because it might lose some of its value in today’s market
• Appreciate it if it gives you short term profit
• Like the Brooklyn neighborhood because it increases the Market value of your property
• Plan to sell when you can make the biggest profit

It’s a home if you:

• Bought it because you want to build a happy life there
• Value it most because of its emotional value
• Worry primarily about it because without it you wouldn’t have a roof over your head
• Appreciate it if it gives you long term profit
• Like the neighborhood because of the people who live there
• Plan to sell when your lifestyle needs change

Personally, I’m nostalgic for the days when a house was called a home because of the love that was inside.

Whether you’re interested in buying Brooklyn real estate as an investment or as a home to raise your family, I can help you achieve your goals.  Give me a call today ask for Charles D’Alessandro your Fillmore  Agent (718) 253-9600 ext 206 or email me at [email protected]