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Private Mortgage Insurance

If you are unable to pay 20% of the new home value as down payment, you have to obtain private mortgage insurance (PMI) to protect your lender in case you default on the loan.

How can you calculate your PMI payments?

You can use a mortgage calculator to determine the PMI payments you need to make each month and also calculate the total PMI cost. Private mortgage insurance enables you to fulfill your dream of owning a house without waiting to accumulate a large amount of money as down payment.

How can you determine your PMI cost?

The lower your down payment, the higher the PMI you have to obtain. Generally, PMI charges amount to about one-half of 1 percent of the loan. You can find out how much the PMI will add to your monthly home loan payments by entering the following into a mortgage calculator:

Sale price or home value
Loan amount
Interest rate
Loan term

With the help of this calculator, you can also determine your principal and interest payments as well as the loan-to-value ratio.

How can you cancel or terminate PMI?

The Homeowners Protection Act (HPA) of 1998 lays down rules for termination or cancellation of PMI. This law provides guidelines for automatic termination and also gives you the right to request your lender for PMI cancellation. You can cancel or terminate your private mortgage insurance in the following 2 ways:

Automatic termination: The HPA mandates that the PMI automatically be cancelled whenever your home loan balance drops to 78 % of the value of the property at the time the loan was obtained.
Request for cancellation: When you have paid down the home loan to a point that it equals 80% of the purchase price or the original appraised value of your home (whichever is less), you can also ask your lender to cancel the PMI. However, it is difficult to remove PMI in the first 2 years of the loan.

By entering current value of your property and home loan balance into a mortgage calculator, you can find out your current home equity and determine if the PMI can be terminated or cancelled. You must always keep in mind that if you don’t make your PMI payments, the mortgage goes into foreclosure. So, you must not stop making your private mortgage insurance payments until you are able to cancel/terminate it.

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