PMI is just extra fees and has nothing to do with your principal or your interest. Taking on two mortgages is only about the money you borrow and there are no extra costs such as private mortgage insurance. PMI or Private Mortgage Insurance is normally required when you buy a house with less than 20% down. Mortgage insurance is a type of guarantee that helps protect lenders against the costs of foreclosure. PMI is not additional homeowners' insurance. It is for the sole protection and benefit of the lender.
PMI does not protect you against losing your house in the event of a default, however. Moreover, the insurance company may be able to seek recourse against you for any default claim they pay to your lender. PMI is needed when the borrower puts down less than 20% on a loan relative to the value of the asset. If you put down lesser than 20 percent, lenders often require you to have private mortgage insurance (PMI). PMI payments can be large amounts so soon the borrower begins to want to rid himself of those payments. The Homeowners Protection Act has rules for suspension and cancellation of PMI when 22% equity is reached in the borrower's home.
PMI, in theory, enables a borrower to purchase a home with as little as 3% to 5% down. There are even some loans that don't require anything down. PMI does not build equity, however, once you have 20% equity in your home you no longer have to pay private mortgage insurance. Of course, you will need to decide based on your specific situation which option is best for you as there is no way to tell how long you will be paying PMI. PMI refers to an insurance policy on your mortgage. Lenders often require that borrowers who don't have enough cash for a 20% down payment take out a PMI policy.
PMI is no longer necessary once homeowners have 20% equity in their house. Automatic notification of cancellation only applies to loans originated after July 29, 1999. PMI is a dreaded word to many consumers hoping to purchase or refinance a home and most will do almost anything to avoid it. However PMI serves an important function in assisting prospective homebuyers who have little available cash to apply towards a down payment purchase a home and it also helps those homeowners who are seeking to refinance with only minimal equity in their home get a new loan and hopefully a lower rate of interest along with it. PMI payments aren?t deductible from income tax.
PMI does not protect you against losing your house in the event of a default payment. Moreover, the insurance company may be able to seek recourse against you for any default claim they pay to your lender. PMI plays an important role in the mortgage industry by protecting a lender against loss if a borrower defaults on a loan and by enabling borrowers with less cash to have greater access to homeownership. With this type of insurance, it is possible for you to buy a home with as little as a 3 percent to 5 percent down payment.
