PMI Insurance?

Question

When do you need to pay this? I already have a home loan, well, 2 actually so we didnt have to pay it when having no down payment on our house. We have great credit, just didnt have a down payment. I will have to refinance at some point in the next 3 years cuz our one loan is a 5 year arm. Will we have to pay the PMI insurance if we refinance? How does that work?

Answer 1

I have been in the mortage business for many years and your question is very common. Whether or not you have to pay PMI is going depend on a few diffrent factors. Generally speaking you are required to pay PMI on any "conforming" (good borrower) loan when you have an LTV (Loan to Value) greater than 80%. For example, if you were to refinance a home valued at $100,000 and the loan amount was $80,000 or less you would not have to pay PMI, if you had a loan amount above $80,000 you would be responsible for paying PMI until the loan amount reached 80% of the value of the property.
How much monthly you would have to pay would depend on a few diffrent things. A couple of those things are credit scores and how high you LTV is.
That being said there are a couple of options available to you to avoid paying PMI. You would need to weigh out the benefits of each option to determine which is best for you and your family. The first option is called TAMI (Tax Advantage Mortgage Insurance) which basically includes the PMI into your interest rate, rather than having to pay monthly PMI. Using the above example, lets say when you refinance you have a loan amount of $85,000 and you qualified for a conforming interest rate of 6% which gives you a monthly payment of $509.62. Since you are above 80% LTV you are required to pay PMI. Lets say your monthly PMI payment is $180, giving you a total payment of $689.62. Now lets say you want to look into a TAMI loan. The bank may offer an interest rate of 7.5% instead of charging PMI. Your payment with the higher interest rate would be $594.33. Obviously you can see the advantage to having a TAMI product. The "downside" to having a TAMI loan is if you had a low LTV and in a couple of years your house value goes up and you pay your loan down enough to get below 80% of the market value you will still have an interest rate of 7.5%, whereas if you had PMI after a couple of years the $180 payment would drop off and you would just have your 6% interest rate with a payment of $509.62. Deciding on whether or not to have a TAMI loan is going to depend on how high your LTV is, how long you are going to be living in your home and the TRUE cost diffrenence between the 2, not relying on "example figures".
The second option available to you to avoid paying PMI would be to break your loan into 2 mortgages, which is the type of loan I believe you currently have. Again using the original example, assuming you owe $85,000 or 85% LTV. What you can do is have 2 mortgage on the property one for 80% or $80,000 and on for 5% or $5,000 totaling $85,000. The term for this is an 80/5 loan. Here's how an 80/5 loan works: Assuming again you qualify for a "conforming" interest rate, the first mortgage or the 80% portion would have the 6% interest rate but the second mortgage or the 5% portion would have a higher interest rate between 8%-12%. Your monthly payment on the 80% portion with the 6% interest rate would be $479.64. Now lets assume the second mortgage has a 10% interest rate which would give you a payment of $43.88. your total monthly payment would be $523.52 The advantage to this is similar to the TAMI program because your 2 payments combined would be lower than 1 loan with PMI.
Obviously the only way to find out what is going to be best for you and your family is to contact a lending institution or a mortgage brokerage and work up some TRUE figures.
On a side note, you also mentioned that your interest rate will adjust in 3 years, so you obviously have some time before you have to refinance. Keep a couple things mind. When you decided to take an adjustable rate mortgage, you already committed to refinance again (obviously you are not going to keep an adjustable rate). So whether you do it now or later at some point you will have to refinance. Market analysts are expecting that the Feds are going to be lowering rates in the next week or so between .25% and .50%. Now may be a good time to consider refinancing because who knows where rates are going to be in 3 years. Yes they may be lower but it's like the old addage: It's better to have a bird in the hand than 2 in the bush.

Answer 2

Basically when PMI comes into play is when you have less than 20% down payment for a house. Some lenders though to make a loan when things were fast and loose with lending, didn't require PMI for certain types of loans, and yours seems to have been one of them. When you go to refinance your arm loan a new appraisal will be done on the property to determine how much it is worth, and if the amount you need to borrow to refinance the loan is more than 80% of what the property is worth you will more than likely have to have PMI with the new loan. PMI is short for Private Mortgage Insurance, and is basically an insurance policy taken out by the lender, but that you pay for, that insures that if you fail to pay the mortgage that the bank will not lose money on the property.

I've attached a link to information regarding PMI for you.

Answer 3

If you have 20% equity in your house or more and your credit is good you should not have to pay it. When you refinance an appraisal will be done as long as it comes out high enough that your equity is >20% you should not pay PMI.

Answer 4

You usually have to pay PMI if you have less than 20% equity in your home. Most people who have ARMs don't pay off much of the principal in the first five years so your equity will depend upon the housing market in your area.

Answer 5

From my experience, even when you refinance, since it will be all in one loan, you will need to have a total loan amount that is less than 80% of the appraised value of the house.

Answer 6

you pay PMI if u put a small amount down, I believe if it's less than 10% but not sure. If u put down at least 10%, you are fine. If you do have to pay PMI, after you have paid enough, u can ask to have it remoived.

Answer 7

If the refi loan amount is less than 80% of the appraised value, then no you won't have to pay it anymore. If it's more than 80%, you'll have to pay it just until you fdrop below that line.