PMI: A Full Guide to Private Mortgage Insurance | Chase

When you apply for a home loan or refinance your mortgage, your lender may require you to pay for an additional type of insurance: private mortgage insurance.

when do you have to pay private mortgage insurance (pmi) and how much will it cost? It depends on your loan-to-value (LTV) ratio. find out when you have to pay pmi and learn how to calculate the cost.

what is pmi?

pmi is a type of insurance that lenders require for certain mortgages with high ltv rates. lenders always accept some level of risk with mortgages. however, pmi can help reduce the risk that comes with some mortgages.

Although you pay PMI as a borrower, this insurance does not protect you. instead, it protects the lender. if you default on your mortgage, pmi pays part of the remaining loan balance to the lender.

however, pmi offers you some benefits as a borrower. paying pmi can help you qualify for a conventional loan that you might not otherwise be eligible for.

when is pmi required?

You may have to pay PMI if you are buying a home or refinancing your mortgage. Lenders may require PMI on certain loans if:

  • Your down payment is less than 20%. most conventional lenders require a down payment of at least 20% of the purchase price. You can calculate your down payment percentage by dividing the amount you plan to put down by the market value or purchase price of the home, whichever is less. If you can’t afford at least a 20% down payment on a purchase, you may need to pay pmi.
  • for refinance loans, your loan-to-value ratio is greater than 80%. If you’re refinancing your current mortgage, most conventional lenders require an LTV ratio of 80% or less to avoid having to pay PMI. You can calculate your LTV ratio by dividing your new mortgage amount by the market value of your home. if your ltv is over 80% you may need pmi.
  • who provides pmi?

    As a buyer, you do not choose your pmi supplier. Instead, lenders arrange PMI directly with the provider of your choice, so you don’t have to take any extra steps. pmi rates can vary between lenders and mortgage types.

    If you have to pay PMI, your lender will set up the payment and coverage, connecting the PMI directly to your loan. That means you don’t have to worry about remembering an extra payment or providing proof of PMI. instead, your lender automatically charges it.

    when do you pay the pmi?

    There are a few ways to handle pmi payments. Some lenders may allow you to choose a payment method. others require you to accept a specific option. The most common PMI payment methods include:

    • monthly premium – Paying a monthly premium is the most common pmi option. In this case, your lender automatically adds PMI to your monthly mortgage payment. You won’t have a large down payment, but your monthly payments will be higher.
    • initial premium: Instead of paying every month, you may have the option of paying the full cost all at once. In this case, your lender arranges for you to pay the PMI when you close the loan. Although it is an additional closing cost, your monthly mortgage payment will be lower.
    • monthly and upfront premiums: Alternatively, your pmi can be a combination of the two methods above. In this case, your lender arranges for you to pay a portion of your PMI at closing and adds the rest to your monthly mortgage payments.
    • how much does pmi cost?

      On average, PMI costs range from 0.22% to 2.25% of your mortgage. how much you pay depends on two main factors:

      • the total amount of your loan: As a general rule, pmi expenses are higher for larger mortgages.
      • Your credit score: Lenders often charge borrowers with high credit scores lower PMI percentages.
      • Lenders often keep charts showing the percentage of PMI to be charged in various situations. you can ask your lender for a specific percentage to make your calculations easier.

        how to calculate pmi

        To calculate your pmi, ask your lender for their pmi percentage or use the range below. then follow these steps:


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