Various Insurance Formats Associated With Mortgages, Part 2

In part one of this two-part blog, we discussed both homeowner’s insurance and title insurance for new homebuyers. These insurance formats are designed with the homeowner’s protection in mind, helping them stay covered in case of certain incidents or issues.

At Altius Mortgage and our partners at Mortgage Ogden, we’re happy to explain any insurance coverages related to our mortgage loans. Another insurance type, but one that is actually meant to protect the lender in certain situations, is known as private mortgage insurance, or PMI. Let’s go over why PMI exists and when you might have to pay it, plus the formats that are commonly used.

Private Mortgage Insurance Basics and Purpose

In many loan types, including conventional mortgages that are still highly common, lenders will be looking for a certain down payment threshold. While the most popular number here is 20% of the total purchase price of the home, this may vary based on your lender and the loan program you’re entering.

In cases where you cannot meet the required threshold for your down payment, PMI is often used as a substitute. Instead of paying those costs up front in the form of a down payment, you take out a private mortgage insurance policy from a private company – the benefits of which will actually be paid to your lender. This is to cover them in case you default on your payments or some other issue crops up, and is essentially a way of allowing a greater number of homebuyers to consider certain mortgage types even if they don’t have a single lump sum available for the down payment.

PMI Payment Formats

PMI can be paid in a few different ways, and this will depend on your lender. The general choices available include the following:

• Monthly premium: Your PMI payment is simply added to your monthly mortgage payment, with the premium showing up on your loan estimate and closing disclosure sections. It will be present in your Projected Payments section as well. This is the most common format for paying PMI.
• Single up-front premium: This is similar to a down payment but different in a few detailed ways, and involves a single payment at the time of closing.
• Hybrid: In other cases, you may pay a smaller up-front premium, then continue with monthly premiums from there.

One other vital note to be aware of: PMI is not a condition that will remain for the entirety of the loan. When you have paid down your mortgage to a point where the balance is at 80% or lower of the original value, you can request to have PMI removed by your lender. When you reach 78% for your balance, PMI should be automatically cancelled.

For more on private mortgage insurance or other important mortgage-related insurance types, or to learn about any of our home loan services, speak to the staff at Altius Mortgage today.