Private Mortgage Insurance (PMI) rates vary based upon a variety of loan factors, such as the percent of the loan insured, Loan-to-Value (LTV), fixed or variable, and borrower’s credit score. The rates may be paid in a single lump sum, annually, monthly, or in some combination of the two (split premiums). Depending on the borrower’s income, mortgage insurance premiums may be tax deductible.
2 Types of PMI
Borrower-paid private mortgage insurance (BPMI) is provided by private insurance companies and paid for by borrowers. The insurance can be canceled once the LTV reaches 80%. PMI automatically cancels when LTV reaches 78% of the original appraised value or sales price, whichever is less. Under certain circumstances BPMI can be cancelled earlier by the mortgage servicer ordering a new appraisal, with it showing a loan balance of less than 80% of the home’s value due to appreciation. This generally requires at least two years of on-time payments.
Lenders’ LTV requirements for PMI cancellation may differ based on the age of the loan and current or original occupancy of the home. While PMI rules apply only to single family primary residences at closing, mortgage investors Fannie Mae and Freddie Mac allow mortgage providers to apply these rules for secondary residences. Investment properties typically require lower LTVs.
Lender-paid private mortgage insurance (LMI) is paid for by the lender instead of the borrower. This is typically done in exchange for a higher mortgage rate or fee structure.
Possible Ways to Avoid Buying PMI
- Second Mortgage. A borrower may obtain a second mortgage in conjunction with their first mortgage. Essentially, the second mortgage makes up the difference between the amount of down payment and the 20% equity requirement. Bankers Trust offers preferential interest rates for Home Equity Lines of Credit or Fixed Rate Second Mortgages when obtained in conjunction with a first mortgage.
- Portfolio Lending. In this case, Bankers Trust services the loan ourselves rather than selling the loan onto the secondary market. With our Portfolio Lending programs, we have the luxury of in-house underwriting to standards we established, rather than adhering to Fannie Mae and Freddie Mac guidelines. Often, this enables us to waive your PMI obligation as well.
Our team of lenders would be happy to discuss all of the opportunities available to you.
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History of PMI Insurance