Who Determines the Cost of PMI

by Kim B. from Sicklerville, New Jersey USA

Ask Kate who determines the cost of PMI (Private Mortgage Insurance): Kate, happy to have found your site. I think we got ripped off on PMI. Our PMI payment is $320.00 per month. From everyone that I've spoken to, the response is that we were taken advantage of. Is there a ceiling on private mortgage insurance?

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Kim continues... We purchased our 250K home seven years ago with no money down. Our credit scores were in the mid 600s back then. We have a 30 year fixed loan at 6.5%. Your thoughts and advice?

Kate Answers: Who Determines the Cost of PMI (Private Mortgage Insurance)

***zz-portrait-left.shtml*** Dear Kim,

While I'm no drooling fan of private mortgage insurance companies, I must admit PMI helps home buyers get into a mortgage without significant downpayment or equity.

Commonly confused with mortgage life (actually death) and unemployment insurance, private mortgage insurance is paid by the borrower and insures only the lender if the borrower defaults on their payments.

At this juncture, a common complaint from homeowners is about their lack of benefit from PMI in spite of being forced to pay through the nose for it. In actuality, there IS a benefit to the borrower - less than 20% was required for a downpayment.
PMI Sidebar: PMI is actually the name of a mortgage insurance company, one among many that insures lenders offering mortgages to borrowers with less than 20% downpayment, for example MGIC, CMG, RMIC, Genworth, Radian. However, the term private mortgage insurance is often shortened generically to PMI.

What Goes into Calculating PMI

Now onto the real question, were you ripped off? Although the borrower pays the premiums, the lender is the client of the mortgage insurance company. So it's not like you could have shopped for the cheapest premiums. But does this mean you were cheated?

To answer this, it helps to understand how PMI is calculated. Pricing guides determining borrower premiums are based on credit score, loan-to-value, debt-to-income, type of income documentation, occupancy status, and even whether the property resides in a distressed market. When I originated mortgages, my experience was that pricing was pretty cut-and-dried.

So I doubt you were individually singled out for higher premiums versus another home buyer with your qualifications. But if your question is philosophical - Is the cost of PMI a rip-off? - be assured throngs of homeowners are already lining up behind you in support.
PMI Sidebar: In general, the system for conventional mortgage transactions with less than 20% downpayment requires PMI. But note the exception of Making Home Affordable refinances. If the current mortgage does not require private mortgage insurance, neither will the refinance regardless of loan-to-value.

Private Mortgage Insurance Consumer Help

But what if you suspect your mortgage insurance premium was not correctly calculated? Although an uphill battle lies before you, I would start investigating. Call your mortgage professional who originated the mortgage and ask for an opinion on the accuracy of your premium. You could also see if anyone at the private mortgage insurance company would speak with you.

If these attempts fail, check out New Jersey Department of Banking and Insurance website (state.nj.us/dobi/index.html) where consumers can file complaints online. The Department Hotline is at 1-800-446-7467 as well.

More PMI Answers from Ask Kate

What Is PMI - Could private mortgage insurance be your solution to equity and downpayment problems?

How do lenders calculate PMI? Credit history, amount of downpayment or equity, occupancy status, and loan type contribute to calculations.

How Do I Cancel PMI? Will refinancing or a new appraisal be required?

What to do if PMI Decision Making is getting in the way of refinancing or buying a house.

Good luck and best wishes,

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Comments for Who Determines the Cost of PMI.

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Sick of the Whining
by: Anonymous

Kate, I have an idea. Maybe she should finance her house with cash, then the terms will be more to her liking. It seems people want to borrow money, but consistently whine and complain about the terms of the loan, after they close.

PMI is a part of borrowing money. The great thing is, no one forced you to buy a home. Sell it and rent if you don't like terms of a loan.

Hi Anonymous, Kate here. I might agree with you if we were discussing the purchase of a sofa or a television. But we aren't.

The strength of America is rooted in homeownership. Not only does it contribute to the financial fortitude of the United States, owning a home is one of the most expensive endeavors most will ever face. Yet the mortgage process remains mysterious in spite of government regulations.

The fear of foreclosure involves much more than losing real estate. The home is also where children are raised and holidays are celebrated.

So I'd say Joe the Homeowner is holding up very well, in spite of confusing, difficult, and unprecedented times.
They Added PMI after My Mortgage Closed
by: Chuck

I had a mortgage with Bank A and it was taken over by Bank B. I had no PMI with the original mortgage, but Bank B added it after they took it over. Can they do this? Chuck from Massachusetts

Hi Chuck, Kate here. I was going to advise you to rummage through the files and spend your Friday night with a magnifying glass.

But why not put the burden on the bank! Write Bank B and ask them to show you the document you signed giving them the right to add private mortgage insurance after your transaction closed and especially after inheriting your mortgage through an ill-fated acquisition.

If they don't respond, it's time to hire an attorney. You can also notify your Massachusetts Attorney General and hopefully get some action there.

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You can also ask Kate about your mortgage at Best Mortgage Advice Social Networking Hotline.

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