Most financial institutions require borrowers to pay for private mortgage insurance (PMI) if their down payment on a house they intend to purchase is less than 20%. PMI is a protection lenders seek to avoid losing money in case a home loan results to a foreclosure. After years of payment and the loan-to-value (LTV) ratio drops to 78%, the lender is then required to cancel the PMI. This means that if your loan has a starting 80% LTV ratio, you do not need to pay a PMI.

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The PMI cost is usually dependent on the purchase price, loan term, interest rate, loan-to-value ratio, type of loan, and credit rating. According to online real estate database company Zillow, Alabama’s 30-year fixed mortgage rate has increased by 2 basis points from 3.80% to 3.82% as of July 2017, which is 2 basis points lower than the national average rate of 3.84%. You can compare existing Alabama mortgage rates and estimates from various lenders to arrive at your personalized interest rate and annual percentage rate (APR) for 30-year fixed, 15-year fixed or ARM (adjustable-rate mortgage) loans.

PMI can be deductible or if you have the budget, you can pay it up front and enjoy a homeowner discount, depending on the benefits provided by your lender. There are four types of private mortgage insurance:

  • Single premium. The insurance premium is paid in a single lump sum.
  • Split premium. It allows the homeowner to pay part of the insurance in a lump sum at closing while the remaining amount is paid in monthly installments.
  • Lender-paid PMI (LPMI). The cost is included in the mortgage interest rate for the life of the loan.
  • Borrower-paid PMI (BPMI). The monthly premium is paid regularly until the PMI is either terminated or when the borrower has reached the midpoint of the amortization period.

FHI loans are a different matter altogether. For any FHA loans made after April 1, 2013 with less than 10% down payment, PMI will be paid for the lifetime of the loan.

New Horizon Insurance can ensure that there is a wide array of options available to you in order to arrive at the best possible customized package that will cover all your house insurance needs,


By Dez Duran-Lamanilao