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Do
you need private mortgage insurance (PMI)?
From
a lender's standpoint, most loans with less than a 20% down
payment needs mortgage insurance, even if the borrower has
excellent credit. This is due to the fact that lenders can
lose a great deal of money on an unpaid mortgage.
As
mentioned in other sections, there are two factors that will
determine if a home buyer needs mortgage insurance: 1) the amount
of the down payment and 2) the type of loan.
As
stated before, home buyers who make less than a 20% down payment
on a home will generally need mortgage insurance. However,
it is important to note that the larger the down payment, the less
a buyer will pay in mortgage insurance. The following table
illustrates this point:
| %
down |
30
year fixed |
15
year fixed |
1
year ARM |
| 5% |
0.78% |
0.72% |
0.92% |
| 10% |
0.52% |
0.46% |
0.65% |
| 15% |
0.32% |
0.26% |
0.37% |
As
you can see, a $100,000 mortgage with 5% down will have a monthly
mortgage insurance payment of $65.00 ($100,000 x 0.0078 / 12)
while a $100,000 mortgage with 15% down on the home will have a
mortgage insurance payment of $26.67 per month ($100,000 x 0.0032
/ 12).
The
type of loan a borrower chooses will have an impact on the amount
of mortgage insurance, if any, that is paid to the lender.
Most conventional loans with less than a 20% down payment will
require mortgage insurance. This includes 30 year or 15 year
fixed rate loans, adjustable rate loans, intermediate arms, and
balloon mortgages for a primary residence, second home, or
investment property. FHA loans have mortgage insurance while VA
home loans do not require monthly mortgage insurance.
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