Friday, May 7, 2010

Private Mortgage Insurance: Mutual Benefit For The Lender And Home Buyer

Private mortgage insurance or lender mortgage insurance is such a legal formality where you have to pay to your lender which is needed for an array of securities in the event of taking out a mortgage loan. This policy is designed to offset losses while the mortgagor will not be able to pay off the amount or when the lender would becoming unable to get back the cost after foreclosure and even if he sell the mortgaged property as well.

The annual cost of private mortgage insurance is determined depending upon various parameters such as tenure of the loan, types of the loan, proportion of the total value of the mortgaged property which is financed, amount of the coverage, how frequently you pay for the premium i.e monthly, annual or single.

PMI is a kind of additional coverage that every lender should have from most of the home buyers who are getting loans more than 80% of the value of their new house.

In mortgage industry PMI is becoming a key factor for the lenders by providing protection against loss incurring if you default on the loan and it enables you with less cash to get the better access for homeownership. If you have this policy then you can be qualified to purchase a house with a down payment of 3 to 5 percent even. So you don’t need to keep waiting for a longer period of time to buy your dream home, as accumulation of huge amount of down payment is not required. It means that you are eligible to come up without full 20% down payment.

PMI gives such a big relief to those home buyers who are going to buy home first time as the average cost of purchasing a home increases every year and making it more and more difficult to the first time home buyers to collect and accumulate that traditional 20% down payment.

It is proved in the survey that buyers who are buying with less than 20% down payment are more likely to default on the loan. Thus it is helpful for the lenders by providing security of the loan.

Private Mortgage Insurance is a key feature for the lender as it protects the lenders and at the same time it gives peace of mind to the buyers as they don’t require to collect a big amount for down payment. According to the new rule, which has been activated in the year of 1998, that if you have already paid down 78% of the value and you are current on your loan then the lender will terminate the PMI automatically.

The borrower will be able to avoid the private mortgage insurance if he will make a down payment of 20% or more than it towards the actual value of the property, which is currently running on mortgage. You can side up this mortgage insurance if you go for second mortgage which will be closed simultaneously with the first one. The second mortgage is recognized as home equity loan providing by the lending institute. If you would be able to pay a little bit extra amount towards your mortgage payment then it will reduce drastically the principle of the loan. It will help you to remove the insurance.

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