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what about PMI

private mortgage insurance

Private Mortgage Insurance (PMI) will be required for all home buyers who do not have at least 20% or more down payment for the home purchase. PMI adds to the cost of your mortgage payment.

Lenders will make loans at lower down payments provided that the home buyer gets Private Mortgage Insurance (PMI).


How Much Does It Cost

You need to check with your lender to estimate your cost percentage for PMI if your down payment is less than 20%.

Nationally, the average annual percentage is around 0.005 of your loan balance.

loan balance   PMI %   Annual PMI Cost


Your Monthly Premium:

If PMI is required as part of your loan, the initial annual premium will be included in your closing costs.

Your subsequent premiums (1/12th of your annual premium) will be included in your monthly mortgage payments and deposited in your escrow account.

Annual PMI Cost   # Months   Monthly PMI Cost


When Does PMI Stop?

If the value of your home increases due to the neighborhood or home improvements, or if you make enough payments on your mortgage to reduce your balance to 80% of the appraised value, does PMI go away?

you can cancel your PMI when the lender can be assured that the appraised value of the home has met the 80% threshold.

But note:
you must initiate the cancel order — the lender will not do it for you unless:

  • you purchased your home after July 29, 1999
  • you reach 22% of the original property value

    in which case the lender must automatically terminate PMI: see the FTC site for information


About Piggy-Back Loans

Piggyback loans is where the lender stacks a second mortgage loan on top of the first mortgage loan. The second mortgage is made at the borrowed amount that brings the down payment percentage to 20%.

The most common piggyback loan is the 80/10/10
80% 1st Mortgage / 10% down / 10% 2nd Mortgage

the purchase price of the home is $100,000.

The buyer only has $10,000 for the down payment. The lender will then underwrite a second loan for $10,000 to bring the required down payment percentage to 20%.

In other words, they have stacked (or piggybacked) one loan onto another.

The interest rate on the second mortgage loan is generally higher than the first mortgage. But unlike PMI, which cost is not tax-deductible, the interest charges on your second mortgage qualifies to be deducted from your taxes.

More Information

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