ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

What is Mortgage Insurance (or PMI) and Why do You Need it?

Updated on July 31, 2019
Nate Robbins profile image

Nate is a Mortgage Loan Originator for a local bank with a degree in Finance, helping individuals make that big ticket purchase.

What is Mortgage Insurance?

Mortgage insurance (MI) is an insurance policy that helps protect the lenders in case the borrower defaults on their loan. In the event of the borrower defaulting, the insurance policy will protect the lender up to a stated percentage of the property's value (typically around 15-20%).

Why am I Paying for Mortgage Insurance?

Federal law states that any individual who has less than 20% equity in their home must carry MI in order to protect the lender, equity being the amount of the home you own. For example, if you purchased a house for $100,000 and put $5,000 (5%) down, you would own that 5% and have 5% equity in the home. From a high level overview, MI is to protect financial institutions and help prevent another financial crisis like the '08 Mortgage Crisis.

When Can I Opt Out of Mortgage Insurance?

When you own 20% equity in your home, therefore are only financing 80%, you have the option to legally opt out of MI which will lower your monthly payment. If you do not opt out when you reach that 20% equity level at 22% equity the policy automatically ends for you.

Is There Anyway Around Paying for Mortgage Insurance?

If you are able to put 20% down on the home, you do not have to carry MI and will save a significant amount of money. If you are unable to put 20% down, try to overpay your monthly payments in the beginning in order to reach that 20% equity mark faster. The quicker you reach the 20% mark, the more you will save. To give some perspective, if you purchased a $100,000 home and put 5% down you would owe the lender $95,000. Your monthly payment would be about $950 (dependent upon interest rates, credit, etc.) of that, only $323 would be going to the principal balance. So, it would take you around 48 payments (4 years) to reach that 20% equity mark. In the meantime, you are paying an extra $50 per month for MI ($2,400 over that span). If the value of your home is higher, your MI savings will be larger.

What If I Don't Get Mortgage Insurance?

If you neglect to get MI after the purchase of your home, the lender can force coverage on the borrower which typically carries a significantly higher monthly premium (nearly double in many cases). Ultimately, until you hit the 20% equity mark, there is no way around paying for Mortgage Insurance.

Your Feedback

Which are You?

See results

Comments

    0 of 8192 characters used
    Post Comment

    No comments yet.

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://maven.io/company/pages/privacy

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)
    ClickscoThis is a data management platform studying reader behavior (Privacy Policy)