Do You Know if You’re Paying Private Mortgage Insurance?

Loan in UtahThere are different ways of paying PMI or private mortgage insurance — some are obvious, while others are not. This likewise means that some mortgage owners are aware that they’re paying PMI, while others aren’t. How about you?

Are You Paying Private Mortgage Insurance?

The most common, obvious scenario is when borrowers pay PMI every month. In this case, it’s part of your monthly mortgage payment. You pay off a predetermined amount every month up until you pay off the entire PMI amount, which is roughly around the time you reach an 80% LTV ratio on your home loan in Utah.

Then there’s the lender-paid PMI, which is somewhat deceptive and relatively confusing. Even if the term connotes that the lender pays for your insurance, it’s really not. In this case, your lender will pay off your premium, but you will get a higher mortgage rate as a result. Put simply, you’re indirectly paid for your PMI in the form of your higher interest rate.

Another way of paying mortgage insurance is through an upfront premium, wherein the bank provides credit for you (the borrower) during closing. This means that you’ll also have a higher interest rate in exchange for actual cash. Borrowers can use the cash for either paying off the PMI in a lump sum or using it to pay for the closing costs.

Yes, You’re Probably Paying Private Mortgage Insurance

Borrowers may assume that there’s an exemption from paying PMI simply because they did not know that they’ve already paid for it during closing or are not paying for it every month. In addition, they also did not pay for it using money from their own pocket since the lender gave them the credit to pay for it. As you can clearly see from the above mentioned scenarios, they have paid or are paying off their PMI, but in different ways.

Knowing which way you’re paying your PMI helps to keep you informed — the right way.