Most lenders require private mortgage insurance (PMI) on home loans when borrowers have less than 20 percent for the down payment. A 20 percent down payment used to be reasonable decades ago when housing costs were much lower. However, the increasing sales prices of homes have made this amount increasingly difficult for prospective homeowners to save. 

The monthly charge for a PMI is typically between 0.5 and 1 percent of the mortgage divided by 12. So, a $200,000 mortgage may have a $125 PMI charge each month. A home refinance loan can save you the additional PMI expense.


When You Have Enough Equity to Refinance Without Mortgage Insurance

The median purchase price for a home in the United States is about $285,000. Consider the following down-payment amounts based on sales price:

  •       $20,000 for $100,000
  •       $30,000 for $150,000
  •       $40,000 for $200,000
  •       $50,000 for $250,000
  •       $60,000 for $300,000

Private mortgage insurance protects the lender if the borrower is unable to make their required payments and the property slips into default.

However, PMI is not required once you have paid 20 percent of the loan. 

For example, your down payment amount to avoid PMI is $57,000 (20 percent) if you bought a home for $285,000.

If you put down 3 percent, or $8,550, to secure your loan, you would need to pay $48,450 towards the principal to remove the PMI charge.

You might also consider a cash out refinance if you have some equity in your home and need funds to pay for improvements or other expenses. A cash out refinance loan can put money in your hands as well as offer more favorable terms.

By Admin