What is PMI? PMI is also known as private mortgage insurance. If you own a home, and you have a mortgage, calculate PMI in order to know more about your payments and premiums and to save guard your finances and future. Do not scramble at the last minute. Know your payments before and if anything goes wrong such as you find yourself in debt, be prepared.
If you put less than 20 percent down on a home’s value upon purchase you will also have to purchase private mortgage insurance. Why? Lenders use this insurance to protect against loss if a borrower happens to default. That is why it is best to have the finances available to put down 20 percent of more of the total cost of the home you would like to purchase to avoid extra costs. Still sometimes, if you are a new home buyer, PMI might be the best option to meet your needs. Whatever your circumstances may be, make sure you calculate PMI before purchasing a house to understand all cost that go into making your dream home become a sustainable reality.
PMI is usually anywhere ranging from 0.5 percent to 1 percent of the total cost of the home. That means that monthly and annual payments can really add up especially if your home is a higher price range. If you pay less than 20 percent of the total home cost and are pushed into private mortgage insurance, you have to continue to pay equity until it reaches 20 percent. This can often take years so make sure you plan ahead. Some lenders even require borrowers to continue paying after the 20 percent threshold is met so make sure you know more about the financial institutions policies and read the finer print. You do not want to get stuck paying more than you bargained for.
So how are PMI’s calculated? Private mortgage insurance premium payments are a mix of everything from your credit score, loan term, the interest rate, loan amount and estimated value of the property as well as loan type. Check out some of the PMI calculators available for free online before you make a final decision. While buying a home can be an exciting endeavor, it does not have to become stressful later on down the line.
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