What is PMI? And Why Do I Need It?

Private Mortgage Insurance (or PMI) is coverage often required by investment agencies such as Fannie Mae and Freddie Mac. PMI may be required if less than a 20% down payment is provided when you close a mortgage or purchase a home.

In most cases, the cost of PMI will be added to your monthly mortgage payment, but it can also be partially or entirely paid at closing depending on your circumstances.

Over time, you will pay down the balance of your mortgage and become eligible to have PMI canceled. There are three ways to have PMI canceled on your loan:

1.  Automatic Termination- If you remain current on your mortgage, PMI will automatically cancel after a pre-determined date when your loan reaches the required Loan to Value (LTV).
   
   
2. Early Termination Based on Original Value- If your loan reaches the required LTV early, you may request early termination based on the original value of your property. UHM may also be required to verify that your property has not decreased since your loan closed.
   
   
3. Early Termination Based on Current Property Value- If you have made improvements to your property since your loan closed, you can request a new valuation to determine if you are eligible for PMI Cancellation.

In all the above cases, you’re required to be current on your loan. In the case of Original and Current value cancellation, you cannot have any 30-day delinquencies in the last 12 months or 60-day delinquencies in the past 24 months.

For more information on cancelling PMI on your mortgage read our article “How Do I Cancel PMI?”

Can PMI be removed through Refinance?

Yes! If you refinance your loan with Union Home Mortgage and your new LTV is below 80% you will not be required to pay PMI.

Contact a UHM Loan Officer for more information.

Will PMI automatically terminate after a borrower recast?

No, removing PMI is a separate review process. Contact the UHM Customer Care team to request removal after your recast is processed.  

Why did my PMI payment decrease?

In rare circumstances, PMI payments may decrease after 10 years. This will be a pre-determined change when your loan closes.

How is my PMI Payment Calculated?

PMI payment amounts are determined based on the amount of your mortgage and your credit score.

Do I need to have an escrow account if I am paying PMI?

You are required to have an escrow account if you have PMI but you are not always required to escrow your tax, or hazard insurance. (Additional restrictions may apply)

What does Loan to Value Mean?

Loan to Value or LTV compares your outstanding mortgage balance with the value of your property. When you purchase a home, the original value of your property will always be the lower of the purchase price and the appraised value. LTV can be calculated using the following formula:

(Loan Balance/Property Value)*100= LTV

For example, if your loan closes at $90,000, your appraisal is $120,000, and you purchase the property for $100,000 then your LTV would be:

($90,000/$100,000)*100=90%

In this scenario, your LTV would be 90%. Remember when you purchase a home, we are required to use the lower of your purchase price and the appraisal for property value when calculating your LTV.

Contact a UHM Loan Officer for more information.