Mortgage insurance, also known as PMI protects your finances when purchasing a home.
A PMI ensures that if you cannot make payments towards your home, you and your lender are protected.
Homeowners are required to purchase a PMI policy</strong> if their down payment is less than 20% of their home’s value. Because there is less equity purchased in your home, your PMI will provide support for your foreclosed home.
Your PMI is normally connected to your mortgage payments, and can be paid for at the same time. Lenders normally have flexible financing options for how your premium is paid. Be sure to speak with your lender if you need to change your payment options.
How Much is PMI?
Premiums can change depending on several factors like the price of your home and your credit score. Here are some other things that may change your rate:
- Your PMI policy.
- If you have a fixed or adjustable rate.
- The length of your mortgage plan.
- The down payment or loan-to-value ratio (LTV).
- The amount of insurance required by your lender.
- If the premium is refundable.
- If you have any additional risk factors in purchasing your home.
Generally speaking, if there is a greater risk to you purchasing a home, there is a bigger risk for your lender. This is how your rate is determined.
What Kind of Mortgage Insurance is there?
There are 5 types of PMI policies a lender will offer. Let’s take a look at what plan will be most suitable to your needs.
Borrower-Paid Mortgage Insurance (BPMI)
A BPMI is a monthly fee that you pay alongside your mortgage payments. You pay your BPMI until you have at least 22 percent equity on your home. From there, your lender should cancel your BPMI if you’re still currently paying your mortgage.
Most BPMI’s are paid within 11 years, or until there is enough equity on your home.
Single-Premium Mortgage Insurance (SPMI)
This is a single-payment insurance policy that can be paid in full at your home’s closing or financed into your mortgage.
Lender-Paid Mortgage Insurance (LPMI)
With this policy, your insurance lender will pay for the initial costs of the PMI, but you pay for it over the lifespan of your home loan. However, unlike a BPMI, you cannot cancel the payment when you reach the equity requirement on your home because it’s now built into your mortgage payments, and is non-refundable.
Split-Premium Mortgage Insurance (SPMI)
With this policy, you pay part of your PMI as a lump sum similarly to SPMI. There is a lower monthly payment that functions like a BPMI. This can be useful for those with a high debt to income ratio. This initial premium charge can range from 0.50 to 1.25 percent of your loan amount, and the monthly payments are based on your loan ratio.
Federal Housing Administration Protection (FHA)
How Can I Save on My PMI?
There are several ways you can save on your PMI. Call Quote Purple to get connected with one of our partners who can tell you more options if you are:
- Buying a home in a rural area or certain suburb.
- Someone with a loan from the Veterans Administration.
- An active or disabled veteran.
Call Quote Purple at (877) 200-6113 to see what payment options are best for your PMI, and get a quote today!
