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Maximize Your Cash Low With PMI
If you've owned a home or shopped for one, you undoubtedly know that lenders require private mortgage insurance(PMI) when a downpayment totals less than 20 percent of a home's purchase price. Although no-PMI loans are available at higher interest rates, it pays to know the facts about mortgage insurance.
Because PMI helps protect lenders against loss, downpayments of less than 5 percent may be possible. You can use that cash savings to buy down your interest rate, or for investments, moving costs, and home improvements.
Once your loan balance drops to 80 percent of the home's original value, however, you have the right to cancel PMI payments. Assuming your payments are current and other exceptions don't apply, you can ask your lender to stop charging for PMI premiums when you own 20 percent equity in the property. Check with your lender about cancelling PMI on government-insured FHA and VA loans, or on loans with lender-paid premiums.
On a $200,000 loan, PMI can range from $70 to $170 per month. Although that's a relatively small price to pay for reducing your downpayment by thousands of dollars, there's no need to keep PMI beyond its useful lifespan.
Since some states have additional laws governing PMI, your home loan may have other conditions. Be sure to talk with your mortgage professional for specific requirements.
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