Private mortgage insurance, or PMI, is insurance that most mortgage lenders will require you to purchase if your down payment on a home is less than twenty percent of the home’s purchase price. This insurance covers the lender’s expenses if your home goes into foreclosure.
The cost for PMI will vary based on your credit score and your down payment amount. For example, PMI will be cheaper if you have a high credit score and a down payment of fifteen percent, and more expensive if you have a low credit score and a down payment of just five percent.
Typically, the annual cost of PMI will be around one percent of your mortgage. So if your mortgage is three hundred thousand dollars, PMI might cost three thousand dollars per year, or two hundred fifty dollars per month.
Once you pay off enough of your mortgage to reach the twenty percent threshold, you can apply to have PMI removed, as long as you’ve been paying on time each month.
Have you ever needed to take out PMI? What was your experience like? Let me know in the comments.