Iowa State Bank is a one-stop shop for all your mortgage and banking needs. The team at Iowa State Bank recognizes that knowledge is power and wants our customers to make informed decisions. Mortgages can include many confusing elements such as PMI, or Private Mortgage Insurance, which we’re discussing in this post.
Private Mortgage Insurance (PMI) is insurance required on mortgages with a down payment under 20 percent of the overall mortgage value. The insurance is to provide a reduction of risk for the lender and allows the borrower ability to accept a mortgage when it is not possible to have a down payment of 20 percent.
How does PMI work?
Private mortgage insurance typically has two options: lender paid or borrower paid insurance. The lender paid insurance essentially is paid for by increasing the interest rate of the overall loan for the loans life. The borrower paid insurance is added to the mortgage as an additional payment or fee and will automatically drop off the loan after the original balance is below 78% of the loan. Private mortgage insurance also varies in price depending on the loan amount, down payment, credit score, loan rate, lender and length of the loan.
How can I eliminate the PMI?
There are a few ways to eliminate the private mortgage insurance. The first method, and easiest, is to make a 20 percent down payment of the principal of your mortgage. This eliminates the need for private mortgage insurance. The other option is to have your home reappraised with the hope of the value of the home increasing 20 percent. There are additional costs associated for reappraisal which vary depending on the lender and company appraising it, so be aware of that before contacting your lender for more information on reappraising your home.
Mortgages can be confusing, especially trying to understand meanings for all the terms and fees associated. Let Iowa State Bank lead the way with our mortgage application process paired with our loan officers. Rest assured, Iowa State Bank will individually assess your mortgage situation and answer all your questions to make sure you understand all aspects of your mortgage. Apply online or come by to get started today!