4 Types of PMI: Which One is Right for You?
When the time of buying a house comes, you know you´re only at the half way of reaching it, so you are focused. However, when the time of actually owning the house comes, you must have faced the downpayment, afterwards you can start feeling proud of yourself.
The best option
There are many ways of dealing with this payment. One of them is the Private Mortgage Insurance (PMI), which has helped a lot of buyers making the payment easier. Although many people think it is a dangerous way of getting the downpayment done, they just don´t know that PMI is an insurance protocol which is given by a private enterprise. This lowers the risk for the lender if you default on your home loan. The most attractive feature is that the downpayment can drop 20%. Nowadays, there are four types of options for PMI, so let´s check them out.
1. Borrower-paid monthly PMI
This is known to be the average PMI people get. Instead of paying that huge amount in the beginning, the purchase price is monthly divided so you can pay it every month. You can cancel this PMI when your loan principal drops to 78%, when you reach 22% home equity.
In addition, this figure is taken from the lesser of the original buying or its current appraised value. This is a suitable option for those who are not sure whether they´ll stay in the house or keep the mortgage.
2. Lender-paid PMI
With this type of payment, you agree with the lender to pay the PMI for you instead of doing that yourself. Afterwards, the LPMI is included in the interest rate or it can be paid as a lump sum that will be part of the closing costs. In this case, the difference relies on who you own money to. This can lower down the monthly mortgage payment and get you a possible tax deduction better than the standard PMI.
3. Single premium PMI
This option is very similar to the LPMI one because there is a big payment in the beginning. The homeowner decides to pay for the mortgage insurance premium in one big sum, eliminating the monthly PMI payment. Nevertheless, instead of receiving a higher rate, you pay for it in cash or by financing it to the loan amount.
4. Spilt premium PMI
Though this is the rarest form of payment, a split premium PMI can be very effective. Instead of making the payment at the beginning, the homeowner pays a part of the insurance in a lump sum at the closing stage. Then, you will have to stick to the monthly payments. The benefit that this option has is clearly lowering the monthly amount to pay.
If you are interested and want to calculate the costs, you should take the loan amount, terms of the loan, loan-to-value ratio, type of loan and the credit score into consideration to exactly know the figure.