Leverage Your Cash Flow With PMI
If you’ve owned a home or shopped for one, you undoubtedly know that lenders require Private Mortgage Insurance (PMI) when a down payment totals less than 20 percent of a home’s purchase price. Although no-PMI loans are available at a slightly higher interest rate, it pays to know the facts about mortgage insurance.
Because PMI helps protect lenders against loss, down payments as low as 5 percent or less are often possible. You can use that cash savings to buy down your interest rate, or for investments, moving costs, and home improvements.
Once your loan balance drops to 80 percent of your home’s original value, however, you have the right to cancel PMI. Assuming your payments are current and other exceptions don’t apply, you can ask your lender to stop charging for PMI premiums when you own 20 percent equity in the property. For home loans initiated on or after July 29, 1999, PMI payments must be terminated automatically when you reach an equity level of 22 percent. Keep in mind, though, that PMI cannot be cancelled on government-insured PHA and VA loans, or on loans with lender-paid premiums.
On a $200,000 loan v.4th a 10 percent down payment, the cost of PMI might avenge $60 to $80 per mouth. Although that’s a small price to pay for reducing the down payment by thousands of dollars, there’s no need to keep PMI beyond its useful lifespan.
Since some states have additional laws governing PMI, your mortgage may have other conditions. Be sure to check with your own lender for specific requirements.
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