Private Mortgage Insurance (PMI) for Refinance Home Mortgage
Refinancing homeowners hate to hear about private mortgage insurance, also known as PMI, because it can tack on a good amount to a person’s monthly mortgage payment without providing a benefit for the borrower. PMI is solely for the benefit and protection of the mortgage lender in the event that the borrower defaults on their mortgage. Since the subprime mortgage meltdown and almost bank crash, private mortgage insurance rates have gone up substantially and can be the difference between a great deal on a refinance mortgage to a loser deal for the borrower.
PMI is required of all home loan borrowers that are doing a mortgage that has a loan-to-value (LTV) ratio over 80 percent. That means if you refinancing a home that is appraised at $100,000, then a loan amount that is over $80,000 will require the addition of PMI. If the LTV for your refinance home mortgage is below 80 percent, then you will not be required to have PMI, unless you are doing a 30 year fha loan.
It is also important to note that most conventional refinance home mortgage programs will drop the private mortgage insurance once your LTV falls below 78%, and as long as you have not missed any mortgage payments up until that point. So, even if over an 80 percent LTV, a borrower might want to take advantage of the current low refinance rates because the mortgage payment will actually get cheaper in the future, once the PMI drops off. On fha loans, the PMI will also be dropped once the borrower’s LTV falls below 78 percent, but the homeowner will have to be in the loan for five years.
