Monday, March 9, 2009
Take Private Mortgage Insurance and avoid Big Down-payment
Bigger down payment often become the reason for home buyers to cancel the deal as they fail to fund the standard amount of 20% down pay. Sometimes even happen that the home buyers do not know that there is a down pay required and in such a situation they fail to take correct decisions which often put them into great depression. This is where the Private Mortgage Insurance (PMI) plays a vital role. It is basically an insurance that a buyer with less than 20% down pay required to pay. This is how with PMI, the lenders actually ensure the balance payment in case of any default from the buyers end. However the price of PMI differs between lenders, but still it comes to 1% of the mortgage amount per year. This means if the loan amount is $250,000 then you land up paying $2,500 for PMI.
Benefits of Private Mortgage Insurance (PMI)
This kind of private Insurance is beneficial as they provide chance to more number of buyers get home ownership. This also gives good opportunity to low-income or medium-income families as well younger buyers to purchase a home as their own asset which they otherwise couldn’t have afforded. It also reduces risk for the lenders by ensuring a repayment in case of any default. It also enables one to buy a home with as little amount as 3% to 5% down payment. This also means that waiting for years to accumulate funds to purchase a home is no more required with the help of PMI.
Tenure of Private Mortgage Insurance (PMI)
Once the insurance payment balances 78% of the home's value, mortgage lenders usually cancel PMI. However, they review the payment history very carefully before doing so. For average home buyers, it normally takes 10 to 15 years to pay 20% of the home's value, however if you stay in an area where the home price increases drastically, then you can get a chance to pay off the balance much faster.
Alternatives to Private Mortgage Insurance (PMI)
PMI has definitely proved to be beneficial for many homeowners, but is costly at the same time. So as an alternative Piggybank loan or 80/20% loan can be suggested but after considering all possible options with various lenders.
Private Mortgage Insurance has actually allowed millions of people to buy homes with smaller down payments. It has also made people qualify for home loans. It has actually helped many people in accomplishing their dream of moving to their own house from an apartment.