Mortgage Insurance Frequently Asked Questions
I have lived in my home for 5 years and am in the process of selling it.
I had to buy PMI insurance because I did not have 20% down. Am I
entitled to any type of refund once I sell the house?
Entitlement to a refund and the amount would depend on the mortgage
insurance plan type and the refundable or non-refundable/limited option
chosen at origination. Your best bet is to ask your lender directly, as
there are many different mortgage insurance plans and combinations.
I think banks are being very greedy in demanding a secured loan plus PMI
and still wanting a perfect credit rating for 7 years. My husband and I
are trying to buy a home. We have a good credit rating, but not perfect
credit for 7 whole years. If you guarantee the loan, what is their
problem in granting it?
Mortgage insurance does not guarantee the loan, it only insures a
designated portion (commonly only 12-30%) of the loan against default.
The combinations of loan characteristics (credit, collateral, MI, etc.)
are established as requirements by investors. Loans usually end up in
mortgage backed securities. The mortgage securities may be purchased by
investors, for example to go into Individual Retirement Accounts (IRA's), 401K plans,
etc. The investment funds for IRAs, 401Ks, etc., have risk and
return requirements which ultimately dictate the loan characteristics.
If mortgage insurance is cancelled, are any pre-paid premium amounts
refunded (particularly if they were originally paid by adding them to
the loan amount)?
If all the mortgage insurance was financed at the time of origination
and is canceled prior to it's maturity you may be entitled to a refund
if the refundable option was chosen at time of origination. However,
if the no refund/limited option was chosen no refund is due.
If a borrower currently has an FHA loan w/MI, after the LTV has reached
80% or less can the MI be cancelled?
It is best to refer back your lender for specific information on FHA
loans. PMI Mortgage Insurance Co. does not insure FHA loans and therefore can not respond
regarding FHA policies.
March 4 update
Can you give an example of how the mortgage insurance escrows get
applied to the payment?
Your lender collects monies on escrow and remits to PMI when the premium
is due. Typically, on an annual premium plan, the lender collects 14
months premium at closing. Twelve months of the premium is paid to PMI
as the initial premium. The remaining two months is used to start the
escrow account. The lender then collects 1/12 of the renewal every
month thereafter. It is hard to give a general rule on a monthly
premium plan. The plan was developed in 1994 and lenders have developed
unique escrowing procedures.
Premise: Mortgage insurance covers the lender for the difference
between the loan amount and 80% value of the property. So for a
borrower who puts 10% down, in effect mortgage insurance covers the 10%
difference. What are approximate rates in premium say per $1000
dollars? Does credit history have a bearing on the premium? Can the
borrower negotiate the premium?
PMI actually covers the lender for a percentage they designate. The
percent of coverage is usually driven by the investor's (often, Fannie
Mae or Freddie Mac) requirements. Therefore, the approximate premium
per $1000 varies based on the required coverage. The premium is fixed
based on plan type (loan to value, loan type, loan term, etc.) and not
related to individual borrower characteristics. Therefore, the premium
is not negotiable.
Are mortgage lenders supposed to provide borrowers with information on
the conditions when they can cancel mortgage insurance? Are these
conditions supposed to be in the loan documentation? If the borrower
pays mortgage insurance monthly, and his equity goes up, should his
premiums go down? Is the mortgage lender supposed to notify the
borrower when he reaches 20% equity? Which states have laws on this
subject? Can the borrower choose the mortgage insurance company or does
the lender do that?
Because of the wide variation in lender, investor and state
requirements, it is necessary to consult your lender on these questions.
Keep in mind when considering mortgage insurance issues that the lender
is the insured, not the borrower.
Would mortgage insurance be of use to lenders to help approve loans for
higher risk (i.e. self employed) individuals?
PMI does insure loans made by lenders to self employed borrowers.
However, it is unlikely that our coverage would have any effect on the
lender's ability to offer such loans. Generally, mortgage insurance is
required due to low down payment and associated risk and not related to
borrower credit characteristics or history.
Does mortgage insurance apply for investor properties?
PMI only insures loans on owner occupied residential properties (1 to 4
units).
Questions and Answers from December 9
What is private mortgage insurance?
Mortgage insurance is a type of insurance that helps protect lenders
against losses due to
foreclosure. This protection is provided by private mortgage insurance
companies, such as PMI
Mortgage Insurance Co., and allows lenders to accept lower down payments
than would normally
be allowed.
Mortgage insurance also enables lenders to grant loans that would
otherwise be considered too
risky to be purchased by third party investors like the Federal National
Mortgage Association
(FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC). The
ability to sell loans
to these investors is critical to maintaining mortgage market liquidity,
which in turn, allows
lenders to continue originating new loans.
Is private mortgage insurance different from other kinds of insurance
associated with
mortgages?
Private mortgage insurance protects the lender in the event of borrower
default and subsequent
foreclosure on the home. FHA and VA insurance also protect the lender
against borrower default
under a government program rather than through the private enterprise
system. Credit insurance,
sometimes called mortgage insurance, is life insurance coverage that
pays off the mortgage in the
event a borrower dies, becomes disabled, or incurs loss of health or
income. Fire, liability, and
theft insurance cover the homeowner from losses according to the terms
and conditions of their
respective insurance policies.
How small can my down payment be?
Private mortgage insurance makes it possible for a homebuyer to obtain a
mortgage with a down
payment as low as 5% and for low-to-moderate income homebuyers as low as
3%. Such
mortgages are popular today because potential homebuyers are not able to
accumulate the 20%
down payment that is generally required by lenders if a loan is not
insured.
Who pays for mortgage insurance?
The lender does, although they will generally pass that cost on to the
borrower. Typically, a
portion of the mortgage insurance premium is paid up front at closing,
and the rest is paid as part
of the monthly mortgage payment.
What are the payment options for mortgage insurance?
Private mortgage insurance can be paid on either an annual, monthly or
single premium plan.
Premiums are based on the amount and terms of the mortgage and will vary
according to loan-to-
value ratio, type of loan, and amount of coverage required by the
lender. Under an annual plan, an
initial one year premium is collected up front at closing, with monthly
payments collected along
with the mortgage payment each month thereafter. Monthly plans allow a
borrower to pay the
lender only 1 or 2 months worth of premium at closing, and then on a
monthly basis along with
the regular mortgage payment.
Under a single premium plan, the entire premium covering several years
is paid in a lump sum at
closing. Typically, homebuyers choose to add the amount of the lender's
mortgage insurance
premium to the loan amount. By doing this, homebuyers can reduce their
closing costs and
increase their interest deduction. PMI Mortgage Insurance Co. offers a
single premium plan called
Super Single.
Below are examples of how a variety of PMI Mortgage Insurance Co.
premium plans could
effect your mortgage payments:
Annual Monthly Super Single
Plan Premium (financed)
Loan Amount(*) $150,000 $150,000 $150,000
Cash for MI at closing $ 750 $56 $ -0-
Financed Premium $ -0- $ -0- $ 3,000
Total mortgage amount $150,000 $150,000 $153,000
Monthly P&I(**) $ 1,317 $ 1,317 $ 1,343
MI Renewal $ 43 $ 56 $ -0-
P&I plus monthly MI $ 1,360 $ 1,373 $ 1,343
(*)Loan amount of $150,000; 10% down payment; 30 year fixed rate
loan at 10% interest.
(**)P&I stands for monthly Principal and Interest on the mortgage.
Can mortgage insurance coverage be cancelled?
Mortgage insurance is maintained at the option of the current owner of
the mortgage. In many
cases, the lender will allow cancellation of mortgage insurance when the
loan is paid down to 80%
of the original property value. However, the degree of equity in the
home is not the only factor
that a lender may take into consideration. Note that the law in certain
states requires that
mortgage insurance be cancelled under some circumstances.
How does private mortgage insurance differ from FHA insurance?
Although the insurance protection concept is similar, there are
differences between private
mortgage insurance and FHA. FHA insurance is a government-administered
mortgage insurance
program that does have certain restrictions. FHA has maximum regional
loan limits that are lower
than those with private mortgage insurance. FHA may be more expensive,
takes longer to receive
approval, and has fewer payment plan options. FHA insurance lasts for
the life of the loan, unlike
private mortgage insurance which is cancelable in most circumstances.
FHA is a good choice for
some borrowers with credit history problems that might need special
assistance.
This page brought to you by PMI MORTGAGE INSURANCE CO.