Buying a House: What Does PMI Mean? [Miami Herald]

People throughout the country are struggling to weigh the pros and cons of renting versus buying.

Buying enables people to put down roots and not deal with a landlord’s rules. However, home ownership always comes with hidden costs and requires ongoing maintenance. One of those being Private Mortgage Insurance, which is a type of insurance that conventional mortgage lenders require when homebuyers put down less than 20% of the purchase price.

Why PMI?

PMI protects the lender in the event that the homeowner defaults on the loan, but doesn’t protect the homeowner from foreclosure.

How much does it cost?

The average range for PMI premium rates is 0.58 percent to 1.86 percent of the original amount of your loan, according to the Urban Institute. Freddie Mac estimates most borrowers will pay $30 to $70 per month in PMI premiums for every $100,000 borrowed.

How do you pay for PMI?

There are three traditional schedules for payment:

When can you stop paying PMI?

Once your mortgage principal balance is less than 80% of the original appraised value or the current market value of your home, whichever is less.

Sources

Consumer Financial Protection Bureau: What is private mortgage insurance?

Bankrate: What is PMI? Guide to how private mortgage insurance works

Rocket Mortgage: What Is PMI? Private Mortgage Insurance Defined And Explained

Nerdwallet: What Is PMI? How Private Mortgage Insurance Works

Urban Institute: Mortgage Insurance Data at a Glance

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