Are you paying

Private Mortgage Insurance?

Private Mortgage Insurance (PMI) is a premium you may be paying on your mortgage if you financed your house with less than 20% down. PMI is an insurance policy that helps protect the lender in case there is a default on the mortgage loan.

Typically, PMI is around .5% of the outstanding loan balance. Let’s assume your home is worth $170,000 and currently, you owe $150,000. That means you are possibly paying $750 a year or $62.50 a month to help insure the loan with the financial institution. And, these insurance premiums are not tax deductible, but always check with our tax advisor if there are some special circumstances or tax changes.

PMI can be removed from a mortgage when your loan amount, in comparison to the value of the home, reaches 80%. The value of the house can usually be determined with tax records or an appraisal.

If you are in the process of buying a house, consider adding to your down payment to avoid PMI or consider doing an 80-10-10… That is when the first mortgage is at 80% of the value, a second mortgage is at 10%, and the last 10% is your down payment. Even though the second mortgage might be at a slightly higher interest rate, it normally is still less expensive than paying the PMI insurance, plus the interest paid on the second mortgage is usually tax deductible.

So, check your monthly mortgage payment and see if you are paying PMI insurance. If you owe 80% or less of the value on your home, you should check with your financial institution to see how this charge can be removed.