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From various things I have read, it seems like PMI stays at the same rate, regardless of how much you owe. Is that right? That is, say I put down 10% and I get PMI. Will my PMI payments stay the same when I have paid off 10% (right at the beginning) as when I have paid off 19.9%? If so, then it would make sense to pay off a bunch (assuming I have savings) to get up to 20% so the PMI goes away.

And, how is the value of PMI usually set? Does the percent you put down affect it? Would I pay less per month when I put 10% down than if I put 0% down?

Thank you!

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Check your mortgage. It might go away automatically, but you can ask to have them re-asses your house. So if your home value rises (and you have more equity), you can get out sooner than you think. –  MrChrister Dec 28 '12 at 16:42
    
@MrChrister Oh, so if the value of the house rises, then the ratio of what I owe to house value goes down, and that is the ratio that matters? –  Graphth Dec 28 '12 at 17:55
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Yabetcha. The PMI is until you have 20% equity, not 20% of the loan paid off. There are a number of factors that affect equity. –  MrChrister Dec 28 '12 at 18:07
    
@MrChrister Do you have a reference for the claim that PMI lasts till one has 20% equity, not 20% of the purchase price? –  Dilip Sarwate Dec 28 '12 at 18:19
    
@DilipSarwate Sure. en.wikipedia.org/wiki/Lenders_mortgage_insurance PMI is about the loan to value, not percent of loan paid off. BUT bankrate.com/finance/mortgages/… claims it must be auto canceled at a point!!! So I was wrong in my first comment (which I have updated)! –  MrChrister Dec 28 '12 at 18:24

3 Answers 3

up vote 5 down vote accepted

As MrChrister says, it all depends on the actual contract. As a general rule, when you get PMI, you are paying premiums for private mortgage insurance, not additional interest, and the monthly premium stays the same (just like your monthly mortgage payment) till the amount still owed on the mortgage reduces to x% of the purchase price, where x is usually 80 but could be 66.67% or some other number, whatever it says in your contract. At this point, you no longer need the PMI and the payment should stop, but you may need to be proactive in the matter and tell them that you have now paid off the appropriate amount of the purchase price and so you are no longer obligated to pay the premiums for PMI. So, if you have the money to spare, it helps to make additional payments towards your mortgage in the early years so as to get out of paying the PMI premiums as soon as possible.

Yes, the premiums you pay for PMI do depend on how much you put down as a down payment, but, again, depending on the lender, there may be broad categories for the rates, e.g. anyone putting down less than 10% is charged the same rate regardless of whether it was 0% down or 9.9% down while those putting down from 10% to 19.99% are charged a smaller premium. Again, the details are specific to the lender, and while lenders in a certain market will have similar rates because of market competition, they can certainly differ in the fine details.

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+1 - once the loan reaches 78%, the bank is supposed to cancel PMI automatically, but as a home owner one could request to have it evaluated sooner. (It appears there are loopholes in that rule, so best not to trust the banks.) bankrate.com/finance/mortgages/… –  MrChrister Dec 28 '12 at 18:28
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MrC - as I noted in my response, 78% reached on natural amortization, not prepayments. Lots of fine print on this stuff. –  JoeTaxpayer Dec 28 '12 at 20:26
    
Very interesting and complicated stuff. It is kinda like the complicated nature is of benefit to one party or another... –  MrChrister Dec 28 '12 at 21:05

From FHA Streamline Refinance MIP Rates For "Newer" Loans:

New Annual Mortgage Insurance Premium Schedule

The MIP schedule for FHA loans with terms greater than 15 years (e.g.; 20-year fixed FHA, 30-year fixed FHA) is as follows :

For loans with LTV greater than 95 percent : 1.250% percent annually
For loans with LTV less than, or equal to, 95 percent : 1.200% percent annually

The PMI does not change during the term of the loan, i.e. it's calculated once. It's pretty crazy to get a loan with close, but not quite, 20% down, as the PMI cost becomes large relative to the downpayment shortfall. MrChrister's remark is correct regarding the 78%. I'd only add this - the 78% is based on the natural amortization, you tell me the loan details, I calculate the date you hit 78%. If you pay the loan faster and hit 78% sooner, it's the bank's option to charge you for an appraisal.

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A typical appraisal is ~ $400 in the Raleigh, NC area. It is worth considering a few other factors to be certain it is worth the appraisal fee to get your PMI removed early.

Number of months your PMI is vs the appraisal fee

If your PMI is $40 / month, it would be 10 months before you recover the difference. If you plan to move or to refinance before then, you have spent more than you could have otherwise.

Costs of a refinance

If you have to pay for an appraisal, then consider if you refinance and accept a slightly higher than prime rate. For example, if you currently pay 5%, prime rate is 3.5% and you can do a "no cost" loan at 3.75%, you would save money very quickly by refinancing. However, if your current rate is already close to prime, it might make the refinance less smart, though the combination of removing PMI AND reducing rate makes the break even point more likely to be sooner rather than later.

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