Episode•February 24, 2022•9 min

Tiffany's Take: Private Mortgage Insurance | Ep. 90

In this episode, Tiffany explains what a Private Mortgage Insurance (PMI) is, what this does, and what are the positives and negatives of a PMI. Every 10th episode, Tiffany sits down and answers one of your submitted questions. If you're interested in submitting a question for next time, please visit https://www.moneytalkwitht.com/asktiffany. Connect with Tiffany on Social Media Facebook: Money Talk With Tiff Twitter: @moneytalkwitht Instagram: @moneytalkwitht LinkedIn: Tiffany Grant This podcast uses the following third-party services for analysis: Podcorn - https://podcorn.com/privacy OP3 - https://op3.dev/privacy

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Key Takeaways

1
PMI protects the lender, not the borrower
Private Mortgage Insurance is required when down payment is less than 20%
It does not prevent foreclosure if payments are missed
Allows buyers to purchase homes without the traditional 20% down payment
2
Four payment methods exist for conventional loan PMI
Borrower-paid: monthly premiums added to mortgage payment
Single premium: lump sum paid at closing or financed into loan
Lender-paid: higher interest rate covers lender's PMI cost
Split premium: combination of upfront lump sum and monthly payments
3
FHA loans require MIP (Mortgage Insurance Premium) instead of PMI
Required when down payment is 10% or less
Must be paid for the entire loan term under current rules
Can be eliminated by refinancing into a conventional loan once equity reaches 22%
4
PMI can be removed once equity reaches 22%
For conventional loans, request cancellation when equity exceeds 22%
Refinancing may be required to remove PMI in some cases
Total cost can add up significantly over multiple years

Intro

In this listener Q&A episode, Tiffany answers the question 'What is PMI?' explaining private mortgage insurance requirements, payment options, and strategies for removal.
Tiffany Grant is the host of Money Talk with Tiff podcast and a financial coach focused on personal finance education.

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– Episode Introduction & Question Overview

Tiffany introduces episode 90 as a listener Q&A session answering 'What is PMI?' for those buying homes with less than 20% down payment.

– What PMI Is and Who It Protects

PMI is required for conventional loans with down payments under 20%. It protects the lender, not the borrower, and does not prevent foreclosure if payments stop.

This does not protect you in any way, but this is a way for people to get into their houses if they are unable to do the full 20%.

– Four Ways to Pay PMI on Conventional Loans

1. Borrower-paid: Monthly premiums (typically ~$70) added to mortgage until 22% equity. 2. Single premium: Lump sum at closing or financed into loan. 3. Lender-paid: Higher interest rate covers cost. 4. Split premium: Combination of upfront and monthly payments.

– FHA Loans and MIP Requirements

FHA loans use Mortgage Insurance Premium (MIP) instead of PMI. Required with 10% or less down payment. Must be paid for entire loan term under current rules.

Unfortunately, because they changed this rule, if you have FHA loan, you have to pay the mortgage insurance over the course of the entire loan.

– Removing PMI Through Equity or Refinancing

Conventional loan PMI can be cancelled at 22% equity. FHA borrowers can refinance into conventional loans to eliminate MIP. Refinancing requires going through the full mortgage process again.

– Closing & Call to Action

Tiffany encourages listeners to submit questions for future episodes and promotes debt-free merchandise available on her website.

Resources

Topics

Private Mortgage InsurancePMIFHA LoansMortgage Insurance PremiumHome BuyingMortgage RefinancingDown Payment StrategiesConventional LoansEquity BuildingFinancial Education