Most people think of health coverage when they hear of personal insurance, which is one option but personal insurance would also apply to mortgage coverage. More commonly known as Personal Mortgage Insurance or PMI, this type of policy is a requirement anytime a person purchases a home with a down payment of 20% of the purchase price or less. The primary objective for this type of personal insurance is to provide lenders with protection in case the buyer cannot meet the financial responsibilities, thus resulting in foreclosure.
Now, for personal insurance specific to the mortgage, as the down payment decreases, the cost of the PMI would also decrease. As an example, the amount you pay for personal mortgage insurance on a 15% down payment would be less than that of a 10% down payment. Typically, the PMI would be included in the monthly mortgage payment so you would not be making an additional payment each month.
One important thing to remember with personal insurance for your mortgage is that over time as you build up equity in the home to the point of being equal to 20% of the home’s value, the PMI should be cancelled. For this, you would need to contact the mortgage company and make the request, although some mortgage companies will cancel the PMI on their own. Regardless, having this type of personal insurance stopped would automatically lower the cost of the monthly mortgage payment.
In addition, there would be some stipulations involved for having the personal insurance in the form of the PMI cancelled. For instance, you would need to be up-to-date on payments, the appraisal would be required to verify the equity equals the 20% or more, and you would be charged a fee for this being done. In addition, the PMI could be cancelled if you were to refinance your mortgage loan. If you were to go with an FHA loan, you would be required to maintain mortgage insurance, which is different from personal insurance such as the PMI.
Unfortunately, not all lenders are eager to let cancel the PMI. In fact, some lenders will actually work hard to stop the PMI from being cancelled, which can make the process challenging and long. Because of this, some homeowners find it easier to keep the personal insurance going and recouping the equity when the home is sold. While this is certainly one option, it also means the monthly payment would be higher each month than necessary.
In most cases, personal insurance in the form of PMI would be required but there are a few situations when this would not be needed. For instance, if the home were purchased with an FHA loan, then the PMI is not a requirement. Another situation when the PMI would not be required would be purchasing a home with a VA loan. Of course, if you have questions about personal insurance for your mortgage, you want to talk to the lender to get answers needed.
In most cases, PMI is a part of the home buying process, again providing lenders with some degree of financial security. However, once you have enough equity in the home, you want to lower your monthly mortgage payments, and your mortgage payments are current, you might do the math to see if it would be worth working toward having this kind of personal insurance cancelled or simply leaving it in place.
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