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?
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)
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
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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