What Is Private Mortgage Insurance?

If you put less than 20% down when purchasing a house, many lenders require you to buy Private Mortgage Insurance (PMI) to cover the remainder of the 20% and to guarantee your loan. Unfortunately, many people keep paying for PMI coverage they no longer need after they have acquired more than 20% equity in their home. The terms of your mortgage agreement may require that you obtain an appraisal to establish that you have reached the 20% equity mark before the PMI obligation is lifted.

However, you can avoid PMI and still put down less than 20% by purchasing a two­loan package. Some mortgage companies offer packages that work as follows: The first mortgage may be the traditional 30­year fixed­rate mortgage for 80% of the purchase price. The second mortgage could then be a 15­year fixed­rate second mortgage for the remainder of the purchase price (less your cash down payment). If you find a lender who allows you to do such a two­loan package you are putting your money into a mortgage instead of giving it away on PMI. In addition, unlike your PMI premium, your mortgage interest is tax deductible.

The information on this page is meant to provide a general overview of the law. The laws in your state and/or city may deviate significantly from those described here. If you have specific questions related to your situation you should speak with a local attorney.

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