PMI is an insurance policy that protects a dwelling and its contents from personal liability and damage. Private Mortgage Insurance protects the lender in case of default by the borrower.
You May Have It
If you bought your home with less than 20% down, chances are you are paying for PMI. Why? To protect your lender against the possibility that YOU might default on your mortgage loan.
Yes, the Truth Hurts You will keep paying.
Even if you have a perfect payment history, you still pay hundreds every year to insure your lender in case you default, and get absolutely nothing in return. Forty percent of homebuyers pay PMI, according to the Mortgage Bankers Association of America.
It's a Blessing... And a Curse.
Statistically speaking, the less you put down on a home purchase, the more likely you are to default, and the more risk to a lender. That is why lenders insist on PMI when borrowers put down less than 20% on a home purchase. To a first-time homebuyer, it improves your chances of getting a 5% down loan. So PMI does make down payments more affordable and lenders more comfortable in financing up to 95% of the sale price.
It's a Good Idea Gone Bad Here�s why...
In theory, when you pay down your loan principal to 80% of the original price, the loan servicer is supposed to cancel your PMI. But some irresponsible loan companies take a hands-off approach, by continuing to collect premiums for years after the insurance should have been canceled. This can drag on until you finally discover the problem and request a refund!
Page 2 of 6
