Mortgage Basics - So What is PMI?

To follow up on an earlier blog about mortgage insurance changes I wanted to explain just want MI is?

Called many things:

• Mortgage Insurance
• PMI
• Mortgage Insurance Premium

When a potential homeowner obtain a new mortgage or refinances a current mortgage and your loan-to-value is above 80% of the appraised value, conforming mortgages (these are the mortgages with all of the good rates and terms) will be required.

Now I am not going into all of the details of how to "get around" PMI for your mortgage (if you like drop me a email and I will go into detail) in the end you are still getting mortgage insurance. In a nutshell, PMI is insuring the investor (the bank) in the event the consumer (you)  does not pay and the home mortgage falls into foreclosure. PMI will pay the investor the difference between the 80% value and the balance on the mortgage. The benefit for the consumer is that you are not required to put 20% down.

Folks, you need to be very careful here. I have heard loan officers tell clients that PMI will pay off the mortgage if the spouse dies. This is just not true. PMI protects the end investor only. PMI may be removed with a current mortgage when a new appraisal reaches 78% or less. It is also important to note that the investor does not have to release the PMI from the mortgage. Again, drop me a email and I will go into detail. 

Due to recent mortgage losses the companies that provide PMI are changing the rules as soon as three weeks from now. This will make getting a mortgage harder and more expensive.

If you in the market to buy or refinance your mortgage, you need to do this now. While Indiana home prices have settled it may be harder to get the mortgage you want or you may have to put a larger down payment.