Our Valley Santa Clarita November/December 2016 | Page 10
HOMES
What About PMI? Why Do You
Have To Pay For It?
What the heck is PMI? It might stand for
“Please More Information!” since many
home loan borrowers have no idea what
it is and why they pay it.
P
MI is Private Mortgage
Insurance. Contrary to what
we understand about PMI, it
does not benefit the buyer
and borrower of a new loan. That’s
right, the insurance is not ensuring
the homeowner’s loss. So why do
they pay it?
Mortgage insurance was created
to protect the lender in the
event the borrower fails to make
the payments and the loan is
foreclosed. Any loan with less than
20% down is required to have PMI.
The annual cost is divided into 12
monthly premiums and added
tothe monthly mortgage payment.
Although it seems to be onesided and only to the benefit of
the lender, the existence of PMI
along with other governmental
regulations allows buyers that do
not have a down payment of 20%
or more to purchase a home. With
the current home prices, most firsttime home buyers would not be
able to purchase a home with low
down payment options (e.g. FHA
3.5% down program) if PMI did not
exist.
10
Current
regulations
allow
borrowers to remove PMI from
their loan once their home’s value
has increased sufficiently. To
remove PMI, the borrower must
have at least 20% equity in the
home. A borrower may ask the
lender to cancel PMI when the
mortgage balance to 80% of the
home’s original appraised value.
When the balance drops to 78%,
the mortgage servicer is required
to eliminate PMI.
This extra monthly cost could be
less painful if your tax accountant
reviews your personal finances and
determines you are able to deduct
those premiums as interest on your
returns. This deduction option
By Mariness Chata,
Real Estate Broker
applies to the 2015 and 2016 tax
years but some homeowners may
not qualify due to their income
bracket or other considerations.
Always consult with your tax
accountant regarding any taxrelated matters.
Learn more detailed information
about FHA and PMI regulations
and benefits here: http://www.
fha.com/fha_
requirements_
mortgage_ insurance