While Private Mortgage Insurance or (PMI) is primarily intended to protect the lender, there are indeed a few things that a homebuyer should know when financing the purchase of real estate. In simplest terms, private mortgage insurance is a fee that is added on to the cost of a loan, when a borrower is unable or unwilling to provide a 20% total down payment. This requirement arises due to the fact that the mortgage lender is put at higher risk under these circumstances. When the 20% down payment requirement has been satisfied, the borrower is typically able to purchase the property with a much smaller down payment. In addition, the 20% down payment reduces the overall cost of the loan, due to the fact that PMI is no longer required. Some countries like Australia have different rules for mortgage insurance. To learn more about them, you can head to mortgage brokers sydney.
The cost of private mortgage insurance is normally a function of the size of the intended down payment on the property in question. The cost of PMI is generally around 1/2 of 1 percent of the actual loan amount. It is also important to note that this type of insurance premium is not considered tax deductible. This is another factor to consider when debating whether or not to have PMI charges included in the cost of your loan. Most loans today, typically include PMI, due to the fact that a 20% down is often a prohibitively large amount of money for most working Americans. Over the long-term, once a loan has been paid down to 80% of the original loan value, PMI can typically the removed.
One key thing to understand regarding private mortgage insurance is that there are some creative ways of avoiding having to pay PMI on a mortgage loan. One popular way of doing this is using a loan product known as the 80-10-10 loan. This particular loan involves a first mortgage of 80% of the value of the home, plus a second mortgage equal to 10% of the value of the home, in addition to a 10% down payment. Another common way to avoid private mortgage insurance is by sometimes agreeing to accept a higher interest rate from the lender. This method of avoiding PMI is quite favorable in that not only does the borrower save on PMI charges, but they also are able to write off more interest on their taxes.
Purchasing a home is one of the most expensive transactions a consumer will likely ever make. Since this is the case, it is important to save money involving this transaction, in as many ways as possible. By knowing your options regarding private mortgage insurance, you are better able to make a wise and informed decision. One final note regarding private mortgage insurance is that it is important for homeowners to keep accurate records of all payments made on their mortgage. Once the loan has been paid down to 80% of the original loan value, it is important to contact the lender and ask them to discontinue the PMI charges. As a home buyer it is important to understand PMI, and it is equally important to use or not use it to your best overall advantage.