Private mortgage insurance or PMI is an insurance that should be acquired by a mortgage holder when the LTV ratio is above 80 percent. Most people who are familiar with the term are the first-time homebuyers who do not have the adequate funds that are needed to make the standard 20 percent down payment. That's where the importance of private mortgage insurance comes into focus.

The purpose of private mortgage insurance

It may happen that a probable homebuyer is not able to make the minimum 20 percent down payment. In such a case, the lender needs private mortgage insurance. The policy helps the lender to protect his money by guarantying him that your home balance will be paid off if, by chance, you make a default. You need to know that the cost of private mortgage insurance differs from one lender to the other. It may cost you about 1 percent of the mortgage amount every year. Thus, for a $250,000 loan, you may pay off around $2,500 each year in private mortgage insurance.
The advantages of private mortgage insurance

The private mortgage insurance has several advantages though the cost may be expensive. It offers more number of accesses to home ownership. Besides, it also saves a good amount of time of the possible homebuyers since they do not have to collect a large down payment. This provides the buyers and the low-income families to buy house that they cannot, otherwise, afford.

The time period you require paying PMI

Once you have paid your balance to 78 percent of the value of your home, the mortgage lenders need to cancel the PMI. The lenders will go through your payment history and value of the home before ending coverage. In case you are considered a high-risk borrower, the lender may ask you to pay 77 percent of the value of your home before canceling the policy. Make sure you are current on the loan with none of the payments late by 30 days or more. For the average homeowners, it will require 10 to 15 years to pay 20 percent of the value of the home. If you are living in a place where the price of home is increasing hugely, you may be able to pay off the outstanding balance soon.

Although the private mortgage insurance is beneficial for many homeowners, it can be quite expensive for them too. It is advisable that you have a talk with your lender and find out which type of loan suits you the best.

For more imformation please visit to: http://www.ampminsure.org/