What is Private Mortgage Insurance (PMI)?
Buying or refinancing a home? You may come across terms such as “PMI” and “LTV” when looking at your loan documents, speaking with a real estate agent or lender – possibly leaving you to wonder “what are they and how do they affect my home loan?”
Private mortgage insurance, or PMI, is a mortgage insurance policy that protects your lender in the unlikely event your home goes into foreclosure.
A mortgage insurance policy that protects your lender in the unlikely event your home goes into foreclosure. PMI is required when you put less than 20% down, which means your loan-to-value ratio (LTV) is higher than 80%.
In other words, less skin in the game = PMI.
Check out this brief video for more information on mortgage insurance and how DuPage Credit Union is different than other lenders – which includes no PMI options and our Low Down Payment Mortgage, perfect for first-time homebuyers.
Loan-To-Value Ratio (LTV)
This percentage is calculated by dividing the amount of the mortgage loan by the value of the property (or purchase price, whichever is the lowest figure).
If your Loan-To-Value Ratio is above 80% you will most likely need to pay for mortgage insurance until your LTV hits 80%.1 Depending on your down payment, the length of your mortgage term and the market, it could take a few to several years to reach this.
For example, if you purchased a home for $200,000 and put down 10% ($20,000) your LTV would be 90% ($180,000). As you pay down your mortgage loan the lower your LTV becomes.
|Down Payment or Equity||$20,000 (10% Down)|
|Loan Amount||$180,000 (90% LTV)|
Your PMI, which is based off of your loan amount, is automatically included in your monthly mortgage payment until you have 20% invested in your home or 80% LTV or once you believe your AVR is at 80%, contact us to see if you qualify for no more PMI coverage. At which point, unlike some other home loans, you are no longer required to carry mortgage insurance on a DuPage Credit Union mortgage loan – saving you money each month and over the life of the loan.
More skin in the game = no PMI.
Still Looking for Answers?
Give us a call at 800-323-2611 or schedule a free Home Loan Consultation – we’re happy to help. Or if you’re ready to start the search for your dream home or have already found it, simply apply today!
1PMI will drop automatically at 78% LTV, but may be requested in writing once your loan hits 80% LTV from the original value.