What Is Private Mortgage Insurance? | Cleveland Bradley County Teachers Federal Credit Union

Buying a home can be a thrilling experience, but it can also be a very confusing one. There’s a tree’s worth of paper you have to read and sign, math you have to consider and more inscrutable acronyms than should be allowed under law.

At Cleveland Bradley County Teachers Federal Credit Union, we work every day to help educators get the financing they need to buy the homes of their dreams while also ensuring they know what they’re getting into.

That means helping people just like you with all those could-be hassles of what should be a joyful time. To that effort, we present here an explainer of one of those abbreviations: PMI.

Understanding PMI

PMI stands for private mortgage insurance, an assurance for the lender that it won’t be left high and dry if things don’t go as planned. Private mortgage insurance is generally required of anyone getting a conventional loan who has less than 20% to put down at closing.

Those who can afford that upfront payment provide the assurance banks need against default, but the rest of us have to cover that as we go.

Lenders work with outside insurance companies to cover those loans, and the small fee related to the policy is passed on to the borrower in their monthly bills. The cost of private mortgage insurance varies based on the ration of your total loan to the value of the property.

It’s typically between .05 and 1%, which works out to $500–1,000 per year for every $100,000 borrowed.

PMI payments stop either when you’ve paid your loan down to the point you have 20% equity in the property or when your remaining principal balance reaches 78% of the original amount of the loan.

Though private mortgage insurance remains a mystery to many people, it’s actually a very common part of buying a home. In fact, a report from the National Association of REALTORS indicates first-time homebuyers average down payments of just 6%, while that number only gets to 16% for repeat buyers.

Cleveland Bradley County Teachers Federal Credit Union has the experience and expertise to help you navigate the home loan process. If you’re ready to purchase a property, give us a call today to get started on the path to homeownership!