How much does mortgage insurance cost?

Mortgage Insurance Costs

Mortgage insurance, also know as private mortgage insurance or PMI is an insurance policy that protects a mortgage lender against non-payment should a borrower default on their loan. Private mortgage insurance makes it possible for someone to buy a home without the 20 percent down payment requirement that is traditionally required. Private mortgage insurance is often required by lenders because of the high instances of default that is often associated with low down payment loans. For some homebuyers mortgage insurance makes the difference between buying a home and not being able to buy a home as they would not be able to afford the home otherwise.

If you are considering buying a home you may wonder how much does mortgage insurance cost. The cost of private mortgage insurance can vary. According to Mortgage Companies of America, an average PMI premium is between $50 to $80 per month on a median priced home of $159,000. Typically the rates will be between one half and one percent of the amount of the loan. Certainly loan amounts can vary based on the cost of the house and the amount of the down payment. Other factors that can affect the cost of a mortgage insurance premium are the amount of the down payment and the credit score of the borrower. A higher down payment and a higher credit score both mean that you are considered less of a risk to the lender and your PMI premium may be reduced because of these factors.

The good news is that after you have reached 20 percent equity in your home this insurance can be cancelled. How soon the mortgage insurance payment can be cancelled depends on how much you have put down for a down payment. The average buyer can cancel private mortgage insurance within 5 years. It may take longer if you put down a very small down payment, such as three percent or less. Increasing your mortgage payment by just a little each month can make a big difference in how long it takes until you can qualify to cancel mortgage insurance payments.

Although the cost of mortgage insurance can increase your mortgage payment, it is worth the cost for plenty of families. The benefit to homebuyers is that there is no need to come up with a large 20 percent down payment. This means more money for the families to spend on other necessities that come along with being a homeowner such as repairs and maintenance. This also means that homeownership can be possible for families that cannot afford a 20 percent down payment but can afford a mortgage payment.