In this episode, we’re talking about PMI. PMI stands for Private Mortgage Insurance. These come into play with conventional loans. When you have a conventional loan, that is it’s private, non-governmental, this is the insurance that covers these loans.

When do you use PMI?

It’s for a loan that has less than 20% down.

How is PMI Calculated?

There are a handful of factors used in calculating PMI rates: the amount put down (5%, 10%, 15%, etc.), the loan amount, how many borrowers are on the loan, your credit score, the property type, and debt-to-income ratio.

PMI on Investment Properties

We don’t get a lot of PMI on investment properties because the minimum down is 15%, and by the time you get to 15%, that PMI factor is pretty low. On top of that, a lot of our investors are looking to avoid PMI.

An example quote for Private Mortgage Insurance

Check out this PMI example quote. This is from the private mortgage insurance company, Radian.

When calculating this rate, we put in a 5% down loan, a $200,000 loan amount, one borrower, a 760 credit score, single family residence, and we selected it to be a primary residence. With this, you’d be looking at $60 a month at a mortgage insurance factor of 0.36%. They calculate the amount by taking 0.36% of the loan amount and dividing it by 12, to get your monthly amount. You’ll pay mortgage insurance monthly and then there is an adjustment period after the 10th year. In this example, the MI rate would go down to 0.2% at the 10 year mark; however, the adjustment period isn’t always hit because a lot of people refinance before that 10th year.

Getting your loan reduced?

Since your monthly fee is based on a percentage, as your loan amount decreases your monthly amount will go down as well. That being said, the actual loan factor, the percentage, will remain consistent. As well, in mortgage insurance, there’s a law that says mortgage insurance has to be removed when the loan amount reaches 78% of the original value, which usually occurs around year 12.

That’s the basic nuts and bolts of PMI.

If you have any questions about this or if you have any questions you’d like us to answer on our podcast, you can email your questions to team@azmortgagebrothers.com or give us a call at (602) 535-2171. Be sure to ask us for a free quote on your next mortgage. We’ll personally work with you and help you through the whole process.

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Thanks for listening and reading the Mortgage Brothers Show. Let us know if you have any questions you’d like us to answer on this podcast. You can email your questions to Tom@AZMortgageBrothers.com or Eddie@AZMortgageBrothers.com.

Be sure to ask us for a free quote on your next mortgage. We’ll personally work with you and help you through the whole process.

Signature Home Loans LLC does not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only. You should consult your own tax, legal, and accounting advisors before engaging in any transaction. Signature Home Loans NMLS 1007154, NMLS #210917 and 1618695. Equal housing lender.

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