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Understanding Private Mortgage Insurance In Massachusetts

By Elizabeth R. Elstien

What is private mortgage insurance (PMI)? PMI is insurance required of any residential homebuyer who has a non-government-backed home loan with a down payment of less than 20% of the sales or assessment price. Government-back mortgages have their own separate requirements and are not subject to PMI. Second mortgages are also not subjected to PMI. Find out how PMI works and just who it benefits.

Who Is The Beneficiary?

The lender is the PMI beneficiary and the homeowner pays the insurance premiums. This insurance reimburses the lender if the homeowner defaults on the loan. As the lender is taking a big risk in lending with little down, PMI is needed to protect the lender.

How Much Are The Premiums?

Premium fees differ depending on the underwriter, the loan total and the down payment amount, but may be as much as 1.15% of the loan amount.

Are Premiums Paid For The Life Of The Loan?

No. The homeowner need only pay premiums until the loan-to-value ratio is 80%. The Homeowner Protection Act of 1988 (HPA) requires the lender to tell the borrower at closing how long it will take to reach 80%. Although the lender is not required to cancel PMI until 78% of the loan is paid per HPA, the homeowner is allowed to keep track of principal payments and alert the lender in writing to stop the PMI premiums at 80% to save money. HPA only affects homeowners with loans dating from July 29, 1999 or after. Also, home prices have increased nearly 8% in Massachusetts. If a homeowner's home has increased in price due to the market or a home remodel, her/his lender should be contacted to discuss cancelling PMI.

Does PMI help the homeowner?

Yes. Because of PMI, a homebuyer can purchase a home with less than 20% down payment. Also, there is a federal tax deduction for PMI that runs through 2013. The deduction may be extended, as it's been in effect since 2007. The homeowner should consult with her/his tax consultant to see if the deduction is applicable, as gross adjusted income must be under $100,000.

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About The Author

Elizabeth R. Elstien has worked in real estate for over 15 years as a real estate...

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