Based on the data that I used for calculating my payments and in the mortgage calculator I am going to need PMI since I am putting less than 20% down. One of the rate quotes I received from a mortgage lender said the PMI was included in the rate, what does this mean?

PMI, private mortgage insurance or simply mortgage insurance, is normally required on conforming loans with less than a 20% down payment.  PMI was typically paid with annual premium added to the loan at the closing and monthly payments included with the principal, interest, taxes and homeowners insurance.  The market for PMI slowly gravitated towards a higher monthly payment without the annual premium at the loan closing.  The next change in payment form was PMI being paid by the lender, often referred to as lender paid PMI.  With lender paid PMI the lender is covering the cost of the PMI by increasing the interest rate on the loan.  Either option of monthly PMI payment or lender paid PMI are viable choices.  The best way to conclude at which option suits you best is to compare the actual costs in a mortgage payment calculator.  Uses the lenders paid PMI with a higher rate and compare it to the standard monthly PMI with the lower interest rate and calculate the monthly mortgage payment on these two loans.  With the users input, the mortgage calculator can estimate how long you would intend to hold the loan and run an amortization schedule with the mortgage calculator to compare the total costs of each product over the time expected to maintain these loans.

This entry was posted on Thursday, December 11th, 2008 at 7:09 am and is filed under Mortgage FAQs. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.