The Skinny On Private Mortgage Insurance

PMI (private mortgage insurance) is the coverage that a mortgage lender may require when a borrower puts less than 20% down to purchase a home.  It is used to reduce the lender's risk in the event the borrower defaults on the loan.  PMI is calculated taking several factors into consideration including the amount of the down payment, the amount of the loan, and the specific terms and conditions of the mortgage.  One can expect to pay approximately .5 to 1% of the loan amount not including the amount of the down payment.  Typically, PMI premiums range from $50 - $100 per month on a median-priced home.  The PMI can be canceled once the principal is reduced to 80% of the loan-to-value ratio or when the property reaches a loan-to-value ratio that meets the lender's requirements for removal (usually around 78%)  Also, PMI is now tax deductible.  Property owners earning less than $110,000 in adjusted gross income can deduct, for the 2007 tax year, some or all of the PMI premium payments if their mortgage closed in 2007.  You can avoid PMI by "piggybacking" two mortgages thus minimizing your down payment but the added higher interest rate on the second mortgage may more than offset what you would pay in PMI.  There is however, a tax benefit to the "piggyback" mortgages in that interest on both are deductible.