Private mortgage insurance (PMI) is a reality that is hard to escape, especially for first-time home buyers. PMI does not give the borrower additional homeowners’ insurance coverage but rather protects a lender against loss if the borrower defaults on a loan, and enables borrowers with less cash to have greater access to home ownership.
The cost is based on the type of mortgage product you secure, the amount you borrow for your house and the amount of your down payment, and is added to your monthly payments. On average the cost runs about 5% annually of your total mortgage amount.
Private mortgage insurance should never be permanent. Prior to agreeing to and signing the mortgage loan, ask for a written disclosure from your lender stating when the PMI payments can be removed from the monthly mortgage payments.
Once you have paid at least 20% of your loan, it is up to you to contact your lender and ask to have the PMI payments terminated. It is a good idea to make this request by phone and in writing. They most likely will agree to do this if you have made your mortgage payments in a timely manner.
To avoid PMI, consider asking your mortgage broker if they will waive private mortgage insurance requirements if you accept a higher interest rate on the mortgage loan. If they do, you may see on average an increase of .75% to 1%, depending on the down payment.