If you’ve bought a home before, or have ever been around someone while they were in the purchasing process, you are probably both aware and afraid of PMI Mortgage Insurance. MI often has the power to make people roll their eyes– but it’s simply a tool that reduces the risk of a mortgage loan. Once you have read this, you’ll be an expert on how PMI Mortgage Insurance works, what the various types of coverage are, the PMI Mortgage Insurance Rates today – and how to make the most of it all.
All home loan programs require some form of Mortgage Insurance – and government programs like FHA Mortgages, USDA Home Loans, and VA Home Loans all have their own forms of Mortgage Insurance (commonly referred to in slang terms as PMI), each with different sets of rules.
Technically, Government Mortgage Loan PMI Rates go by very different acronyms… but it’s still mortgage insurance that covers the lender in case you quit making your mortgage payments.
The rates on these programs are set by the Government Agency, they can change on a regular basis – but at this time, none of the Government Backed Mortgage Loan PMI Rates allow you to “get out of” PMI once you hit ANY Equity position. If you have a government loan, you have that Government Mortgage Loan PMI until you pay the mortgage off.
Private Mortgage Insurance (PMI) is actually the instrument strictly used for traditional Conventional Mortgage Loans. PMI is also required for refinances where 20% equity has not been reached yet.
PMI Mortgage Insurance
The main benefit of Mortgage Insurance is protection for the lender. Private Mortgage Insurance, or PMI, is required on all traditional conventional mortgage loans where the borrower puts less than 20% down.
If a home is foreclosed on, the bank is much more likely to “break even” on the sale of the property if there is at least 20% equity in the home. However, we understand that not every borrower is able or desires to empty their wallet on a down payment, and this is why traditional Conventional Mortgages are offered with as low as 3% down payment.
In those cases where a home is foreclosed on, and equity is below 20%, the lender files a claim with the mortgage insurance company for a portion of the difference – the portion that is covered with PMI. Normally that’s between 18% and 35%.
Similar to other types of insurance we use everyday, mortgage insurance is paid for ahead of time on the chance that you might need it. Like car insurance, you may pay for it and never need it. However, the major benefit of Private Mortgage Insurance is that you do not need to have it for the length of the mortgage loan.
Once you reach 78% Loan to Value, or 22% equity in your home, PMI automatically terminates. Even better, at 80% Loan to Value, or 20% worth of mortgage payments made, you can request to cancel your PMI. We currently use five PMI Providers, and we work closely with all of them to find you the lowest costs.
Why Are We Talking About PMI Rates?
I wanted to put out some information about various PMI Rates because so many of our borrowers are First Time Home Buyers with Student Loan Debt. The BEST program for those who have Student Loan payments that are in IBR or IBC status is a Freddie Mac, Conventional Loan. With this program, you can put as little as 3% down, we can qualify you with the payment showing on the credit report – it’s a great option.
Unlike FHA Loans that require us to use 1% of the balance, the Conventional Freddie Mac Underwriter is considering only the payment reflected on the Credit report. If you have good credit scores, and can get a gift for the 3% down payment, frankly the PMI on a Conventional Loan is cheaper than the FHA Alternative.
PMI Mortgage Insurance Premium Options
PMI can be paid for in many different ways. We offer three different types of Private Mortgage Insurance: Borrower-Paid Monthly, Borrower-Paid Single premium, and Lender-Paid Single Premium. Let’s explore what those are.
Borrower- Paid PMI Mortgage Insurance can be paid two ways: monthly, or in one sum up front (a single premium).
If you choose Borrower-Paid Single Premium, you will pay for your Mortgage Insurance at closing with your down payment and closing costs and then never think about it again. You are done!
The cost of PMI will appear on your Loan Estimate and Closing Disclosure so that you will be able to accurately budget for it and bring everything you need to the closing table.
If you are paying for PMI Mortgage Insurance monthly, you will pay for it alongside your monthly mortgage payment. Once you reach 20% or 22% equity in your home, or you pay down the loan amount to 78% or 80% of the value of the home, it should be automatically cancelled.
Lender-Paid Single Premium is paid by the lender- but it is not free.
You will essentially pay for this with a slightly higher interest rate, and your Loan Officer will find a way to cover these costs while still offering you a competitive rate. Lender-Paid MI can be complicated, but in some cases is more than worth it. All of our Mortgage Insurance providers offer Lender-Paid Single Premium, and most programs will accept it.
I know what you’re thinking, Lender-Paid is an obvious choice. Many borrowers feel this way initially, but my goal here is to give you an objective, birds-eye view of all of your options.
To help with this, I interviewed Steve Thorne (hehehe), a Loan Officer in our Cary, North Carolina office who also happens to be a 20-year veteran of the industry. Steve argues that the borrower will save money with the Borrower-Paid option, though it may not appear that way at first.
“Lender-Paid PMI Mortgage Insurance is not free to the borrower. We make up for it with a slightly higher interest rate. This may not seem like it makes that much of a difference, but if you do the math, you will see how you could end up spending more money. You have that interest rate for the life of the loan and your mortgage payment will be same each month for the life of the loan.
With mortgage interest rates as low as they are today, it’s unlikely someone would refinance so let’s assume you keep this exact mortgage for thirty years as many borrowers do.
After a few years, you have already paid three to four times the amount of that Borrower-Paid Single Premium in interest from that higher interest rate. To add to that, Monthly Borrower-Paid PMI falls off after 20% equity is reached in the home. That interest rate you get with Lender-Paid stays with you for the life of the loan, even after 20% equity is reached.” –Steve Thorne, Loan Officer at Equity Resources Cary.
PMI Mortgage Insurance Rates
I’ve been in this business longer than Steve, so let’s just say forever, and I’ve never been great at ready PMI Mortgage Insurance Rate Cards. You need to know what percent are you putting down on the home, and your middle credit score to figure out the rate. The formula goes something like this…
At a 97% Loan, most lenders require a coverage of 35%. Depending on the PMI company, the Mortgage Company and your loan is being sold to here are the PMI factors I found today. These are for Borrower Paid, Monthly PMI Rates in NC: We can do a Conventional Mortgage Loan with as little as 3% down with credit scores as low as 620, however the factor for that mortgage loan is 2.25%. How do you calculate that into your payment? You simply take the loan amount (for easy math I’m using $100,000) multiply it by the Factor, and then divide by 12 for Borrower Paid Monthly PMI Mortgage Insurance. So with a 780 Credit Score, $100,000 x .55 = $550 / 12 equals $45.83 a month. Meaning, you have a cost for the mortgage re-payment (called P&I), you will have taxes, HOMEOWNERS Insurance (fire insurance) and a PMI cost each month in your monthly payment. As a comparison, a PMI Mortgage Insurance Rates for a Single Premium Credit Score of 780 for 97% is $2820.00 based upon a search I did today. This could be slightly different depending on the Investor, mortgage company you are working with and the STATE you are buying a home in! I’m quoting the NC PMI Mortgage Insurance Rate. Going back to Steve’s point about Monthly MI paid by the borrower when comparing it to the Lender Paid, a Lender has to charge you a rate high enough to cover these additional $2800+ in fees to cover the Premium. At a 95% Loan, most lenders require a coverage of 30%. Depending on the PMI company, the Mortgage Company and your loan is being sold to here are the PMI factors I found today. These are for Borrower Paid, Monthly PMI Rates in NC: We can do a Conventional Mortgage Loan with as little as 5% down with credit scores as low as 620, however the factor for that loan is 1.61%. How do you calculate that into your payment? You simply take the loan amount (for easy math I’m using $100,000) multiply it by the Factor, and then divide by 12 for Borrower Paid Monthly PMI Mortgage Insurance. So with a 780 Credit Score, $100,000 x .41 = $410 / 12 equals $34.16 a month. Meaning, you have a cost for the mortgage re-payment (called P&I), you will have taxes, HOMEOWNERS Insurance (fire insurance) and a PMI cost each month in your monthly payment. As a comparison, a PMI Mortgage Insurance Rates for a Single Premium Credit Score of 780 for 95% is $1961.00, based upon a search I did today. This could be slightly different depending on the Investor, mortgage company you are working with and the STATE you are buying a home in! I’m quoting the NC PMI Mortgage Insurance Rate. Going back to Steve’s point about Monthly MI paid by the borrower when comparing it to the Lender Paid, a Lender has to charge you a rate high enough to cover these additional $1900+ in fees to cover the Premium. At a 90% Loan, most lenders require a coverage of 25%. Depending on the PMI company, the Mortgage Company and your loan is being sold to here are the PMI factors I found today. These are for Borrower Paid, Monthly PMI Rates in NC: We can do a Conventional Mortgage Loan with as little as 10% down with credit scores as low as 620, however the factor for that loan is 1.10%. How do you calculate that into your payment? You simply take the loan amount (for easy math I’m using $100,000) multiply it by the Factor, and then divide by 12 for Borrower Paid Monthly PMI Mortgage Insurance. So with a 780 Credit Score, $100,000 x .30 = $300 / 12 equals $25.00 a month. Meaning, you have a cost for the mortgage re-payment (called P&I), you will have taxes, HOMEOWNERS Insurance (fire insurance) and a PMI cost each month in your monthly payment. As a comparison, a PMI Mortgage Insurance Rates for a Single Premium Credit Score of 780 for 90% is $1350.00, based upon a search I did today. This could be slightly different depending on the Investor, mortgage company you are working with and the STATE you are buying a home in! I’m quoting the NC PMI Mortgage Insurance Rate. Going back to Steve’s point about Monthly MI paid by the borrower when comparing it to the Lender Paid, a Lender has to charge you a rate high enough to cover these additional $1300+ in fees to cover the Premium. At a 85% Loan, most lenders require a coverage of 12%. Quite frankly, at anything more than a 10% down payment, we are likely going to do the comparison of an Equity line to get you to the 80% LTV with no PMI. Depending on the PMI company, the Mortgage Company and your loan is being sold to here are the PMI factors I found today. These are for Borrower Paid, Monthly PMI Rates in NC: We can do a Conventional Mortgage Loan with as little as 10% down with credit scores as low as 620, however the factor for that loan is .45%. How do you calculate that into your payment? You simply take the loan amount (for easy math I’m using $100,000) multiply it by the Factor, and then divide by 12 for Borrower Paid Monthly PMI Mortgage Insurance. So with a 780 Credit Score, $100,000 x .19 = $190 / 12 equals $15.83 a month. Meaning, you have a cost for the mortgage re-payment (called P&I), you will have taxes, HOMEOWNERS Insurance (fire insurance) and a PMI cost each month in your monthly payment. As a comparison, a PMI Mortgage Insurance Rates for a Single Premium Credit Score of 780 for 90% is $850.00, based upon a search I did today. This could be slightly different depending on the Investor, mortgage company you are working with and the STATE you are buying a home in! I’m quoting the NC PMI Mortgage Insurance Rate.
Somewhere between 87% and 80% LTV it probably does make sense to run the numbers – and see the comparison between Lender paid and monthly. You really need to look hard at the length of time you are likely to stay in the home, and the expected appreciation in your area to decide what is right for you.
The PMI Coverage Rate for NCHFA Affordable Home is .18%. These “Mortgage Grants”** mean that you do not have to make a down payment, and in some cases, these down payment assistance programs can also cover the closing costs. *NCHFA stands for NC Housing and Finance Administration, lovingly referred to around here as “NC Housing.”
**A Quick Note
We refer to these programs as “mortgage grants” because there are no payments to be made, there is no interest charge, and there’s no expectation that you will have to repay ANY of the money you receive for down payment, unless you move out of the property or refinance prior to the dates assigned by your specific down payment assistance program.
The literal term for this down payment assistance program is a “forgivable loan.” Under the terms of the program that best suits you, a portion of this down payment assistance will be forgiven on a schedule that we will share with you when you make loan application. These funds are available to us through NC Housing (NCHFA) and are available through other lenders in the state as well. The interest rates for these programs, however, will not vary from lender to lender as that is set by NC Housing.
The Mortgage Down Payment Assistance programs have such a low PMI coverage amount, then the payment can be much lower – but there’s a catch. There’s no upfront fee to be paid, and the rate does NOT change based upon higher or lower credit scores.
It is, by far, the best game in town on a Conventional Loan. The mortgage interest rate for the program is set by the State, and it will not vary based upon what lender you use. It’s the lowest PMI Rate available in NC… but your MORTGAGE Interest rate is likely to be slightly higher than what we are quoting for other Conventional Loans.
Again, this mortgage rate is SET BY THE STATE Agency here in NC, and it changes pretty regularly. Even with the slightly higher interest rate, the “break” for the lower PMI Rate (especially for those with credit scores under 700) makes this a GREAT program, saving most folks over a $1000 a year.
The DOWNSIDE to the Mortgage “Grant” programs is the fact that they are FNMA programs, and we must count 1% of Student Loan Debt, or the fully amortized payment We can not use Freddie Mac with the Down Payment Programs.
If you have questions about PMI Mortgage Insurance Rates – Current PMI Rates in NC, and you are looking for the BEST Mortgage Rates – please call Steve and Eleanor Thorne, 919-649-5058. We are Professional Mortgage Planners with over 20 years of experience helping First Time Home Buyers in NC!
I try and answer all questions :)