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Avoid Private Mortgage Insurance (PMI) on Your Home Loan

Laura explains what private mortgage insurance (PMI) is and how to avoid paying it. Find out your rights for cutting this expense as quickly as possible so you reduce your mortgage payment and save more money.

By
Laura Adams, MBA
7-minute read
Episode #436

How Much Does Private Mortgage Insurance (PMI) Cost?

PMI could range from 0.20% to 1.5% of the balance on your loan each year. The annual cost is typically divided into 12 premiums and added to your monthly mortgage payment.

You’re probably wondering how much PMI will cost if you can’t make more than a 20% down payment on a home. It varies depending on the type of mortgage, how much you put down, your credit, and the term of the loan.

PMI could range from 0.20% to 1.5% of the balance on your loan each year. The annual cost is typically divided into 12 premiums and added to your monthly mortgage payment.

Let’s say you buy the $200,000 home from my previous example. You take out a 30-year, fixed mortgage for $180,000. With a 90% LTV and good credit, your PMI will be close to $100 per month.

Some lenders may require you to pay a one-time PMI fee at closing, or ask for both monthly premiums and an upfront payment. If your lender offers more than one option, ask for a detailed pricing comparison so you can weigh the pros and cons and see what PMI structure is best for you.

See also: Best Tips to Improve Your Credit Score

Mortgage Options When You Have a Small Down Payment

Lenders may offer low-down payment conventional loans with no PMI; however, they typically come with higher interest rates. What’s right for your situation depends on factors such as how long you plan to keep the mortgage, your credit, and the going interest rate.

If you don’t have much for a down payment, consider other types of mortgages backed by the federal government:

  • Federal Housing Administration (FHA) loans are available with as little as 3.5% down, even if you don’t have good credit. Mortgage insurance is required, but you can roll it into your loan instead of paying for it out of pocket. That causes your loan amount and the lifetime cost of your loan to increase. It also means that (unlike with a conventional mortgage) you can never cancel mortgage insurance on an FHA loan.  
  • Department of Veterans’ Affairs (VA) loans are available for service members, veterans, and surviving spouses. They require no down payment or mortgage insurance, but they do come with an upfront funding fee. It varies depending on factors like your type of military service, disability status, whether you make a down payment, and if you’ve had a VA loan before.

These types of mortgages may be more or less expensive than a conventional loan with PMI, so be sure to compare all your options carefully.

See also: Best Mortgage Company to Shop Your Home Loan

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About the Author

Laura Adams, MBA

Laura Adams received an MBA from the University of Florida. She's an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura's previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.