PMI is extra insurance that lenders require from most home buyers who obtain loans that are more than 80 percent of their new home's value. In other words, buyers with less than a 20 percent down payment are normally required to pay PMI. PMI premiums, which protect lenders against loss if borrowers stop making their mortgage payments, typically cost between 0.5% and 1% of the mortgage loan amount.
For example, if you borrow $150,000 and the PMI premium rate is 1% of the loan amount, the cost of PMI would be $1,500 per year or $125 per month. Once you have reached 20% of the value of the property, PMI is no longer paid. You will need to make sure the mortgage holder has removed that from your payment.
For many loans that closed on or after July 29, 1999, private mortgage insurance will automatically terminate when the outstanding principal balance is scheduled to reach 78% of the original property value.
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