Pennsylvania PMI
requirements for Mortgages. How to Calculate PMI. Private Mortgage Insurance (PMI) Prices. LPMI comparison
for loans in PA. PMI Expense. PMI, LPMI
Removal
Private Mortgage Insurance (PMI) is
an insurance that protects the lender if a borrower defaults on
their loan. This insurance is what encourages the lender to
make loans over 80% LTV. When a borrower defaults on their
mortgage, that the average amount recovered by the bank after
foreclosure, due to costs, is 80% of the value of the home.
The PMI protects the bank by covering what they will not recoup in a
worst case scenario. Before PMI, when our grandparents bought
homes, 20% down was needed. PMI is temporary until you
establish 20% equity in your home.
With the housing crisis PMI has become more
costly. These rates are current as of the 2/10/09. The last change
was 11/17/08.
Pennsylvania Conventional
mortgage underwriting guidelines require
PMI
or LPMI
on mortgages with greater than 80%
LTV.
There are 2
alternatives to paying BPMI (regular Borrower Paid Mortgage Insurance):
LPMI
Piggyback 2nd mortgage (which is not readily available
anymore).
Calculate a
PA BPMI/PMI Monthly Premium:
The maximum PMI price for a 30 year fixed rate
mortgage (using latest updated/increased PMI rates) :
80.01 to 85% LTV:
Loan Amount (LA) x 0.0038 /
12
85.01 to 90% LTV: LA x .0062 / 12
90.01 to 95% LTV: LA x .0094 / 12
95 to 97% LTV:
LA x .009 /12
PMI factor is the number you multiply by the loan amount (.0038, .0062,
etc.)
Adjustments to PMI factor:
5-25 year loan: -.11
Cash out refinance +.20
Loan amount over $417,000 +.25%
Rate and Term refinance +.10%
Second Home .14%
Calculate your LTV:loan amount
or
loan amount sales price (purchase)
appraised value
(refinance)
Summary- Benefits of BPMI:
PMI is now tax deductible for those with adjusted gross income of less than
$100,000. If you qualify for this deduction, PMI may be to your advantage,
especially 80-85% LTV loans where the PMI is inexpensive. Please contact
us at 610 326-2099 to work up a PMI comparison. PMI has been the
best option for most borrowers with less than 20% down since 2008 because of the
tax benefits and the mortgage loan guideline changes with 2nd mortgages.
The draw back of LPMI is its long term cost: We advise never to accept LPMI unless you are
going to be moving or otherwise paying off the mortgage in the immediate
future. The reasons: It can never be removed! PMI is only paid until
you build some equity (20%) and then it goes away. LPMI is a higher
rate you pay for the life of the loan. It may be tax deductible, but it
will cost much more than the other 2 options over 30 years.
Mortgage companies like it, because they make more money with the higher interest
rate, but we rank it the worst
option for those who plan on keeping the loan for more than a few years.
You may remove PMI by paying the principal down to 80%
instead of waiting for it to occur naturally through amortization. If you
want to remove the PMI through appreciation of the home, you typically must wait
2 years and have an appraisal done. (Consult your lender for their
policies.)
Please call us at 610 326-2099 for more
information.
*Consult a tax advisor for your specific situation and tax
implications. Assumes average income with itemized
deductions. Those with very high incomes may lose deductibility of mortgage
interest. Meant for informational purposes only.
