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Each mortgage payment includes 5 items. It is called “PITI + PMI”. “P” stands for payment that reduces the Principal loan balance (This goes towards your equity ). “I” stands for Interest that you pay to the lender for lending you the money to buy the house. “T” stands for Taxes to the county. “I” Stands for the Home owners Insurance. Finally, “PMI” stands for Private Mortgage Insurance.

How the loan payment is decided? When you take out a loan the total amount of money that you borrow is called the principle. This is usually the price of the house minus the down payment. Interest is the amount of money that the bank or lender charges you for the loan. It is a percentage of the principle. In an amortized loan your monthly payment is the principle divided by the number of payments plus the interest, taxes, and PMI. Your monthly mortgage payment will first go to paying part of the interest on the loan and then it will go to paying part of the principle. In the beginning of the loan the majority of your loan payment will go to the paying of interest. This will change over the life of the loan. By the time you are half way through the loan your mortgage payment will go equally to interest and principal with each month after having a larger part of the payment going towards the principle.

For example, if your house is damaged or destroyed, or if your valuables are stolen, you contact the insurance company and they will send out an appraiser who will assess the damage and provide you with an estimate of the cost to repair. If the loss is due to theft or vandalism, the appraiser will need a detailed list of the items stolen or damaged, their value and police reports filed due to the theft or vandalism.

On the other hand, PMI mortgage insurance is extra insurance lenders require from most home buyers who obtain loans that are more than 80 percent of the homes value. Normally, buyers with less than 20 percent down on a home are required to pay PMI.

As you can see, there can be benefits to be reaped by avoiding private mortgage insurance. Be sure to check with your lender to see how you can save with the option of lender paid mortgage insurance; you will keep more of your monthly income in your pocket and avoid paying a huge down payment.

Learn more about Obama Mortgage Relief Plan Qualifications.

Private mortgage insurance (PMI) is usually required when a prospective home buyer doesn’t have a large enough down payment (typically less than 20 percent) to put down on a home. These premiums can cost anywhere from one hundred to a few hundred dollars per month. However, there is a way to save money on your private mortgage insurance, so keep reading to learn how.

Mortgage lenders are usually required by Fannie Mae and Freddie Mac to have Private Mortgage Insurance on all mortgages with loan-to-value ratios greater than 80 percent; however, lenders that do not sell mortgages on the secondary market can offer loans without PMI mortgage insurance. The catch is that these no Private Mortgage Insurance lenders typically price their loans .5% higher than the prevailing market rates.

PMI automatically terminates when your loan to value (of the original property value) reaches 78%, and but you can request it terminated when it reaches 80%. Some lenders will allow you to terminate the insurance when the appreciated loan to value reaches 80%. So, how long are you keeping this loan? Will you be paying down the principal balance rapidly? Is this your forever home and your forever mortgage rate? Then perhaps LPMI isn’t such a hot option. You can review an amortization schedule when making this decision to figure out just what payment will get you to that target loan to value (LTV). If you know that you will be making extra principal payments regularly, your lender should be able to help you analyze that scenario as well. However, if you’re going to be in the house a short time, than LPMI might just be the way to go.

Are you a veteran? Through the Department of Veterans’ Affairs home buying program, you may be eligible for mortgage insurance coverage through the VA. They’ll insure a purchased home, up to 100 percent financing, and save you the cost of private mortgage insurance (PMI). There are limits though on the price of the home, and this will fluctuate depending on your region or county.

Consult with a broker. Before you opt for your bank or lending institution’s standard PMI, ask if you can obtain your own private mortgage insurance. You can sometimes find lower rates from a private insurer rather than going directly through your bank.

Learn more about Obama Mortgage Relief Plan Qualifications.

Are you thinking about buying a home? It is a buyer’s market, because there are a plethora of homes for sale at great prices, and interest rates are still relatively low. Of course, when buying a home, there’s a lot more to think about than just securing a loan and making house payments. You need to be cautious about the area where the home you buy is located, because even if the home is valued quite low when you buy it, when we finally get out of this recession, home prices will go back up, and you need to be sure that you can afford the property taxes you will be assessed. Another expense might be carrying PMI mortgage insurance if it’s required.

PMI mortgage insurance – While it increases your payment, PMI may in fact be your best option to obtaining a house. After all, PMI often can be canceled within two or three years and some PMI programs even allow you to collect a refund of some premiums upon canceling. PMI is especially attractive in areas where the property values are steadily increasing.

When you purchase a home with PMI, the lender secures the policy for you. You pay for the PMI at closing or, most often, you pay a monthly fee with the monthly payment. If you default on the loan, the lender receives the difference between the down payment you made and 20% of the loan amount. PMI payments can be considerable, so it is best to avoid using private mortgage insurance if possible.

Piggy Back Loan A piggyback loan structure is another way to buy a home without making a 20% down payment and without mortgage insurance (MI). In effect, the borrower is taking out two separate loans – one “piggybacked” onto the other – so you will have two loan payments each month. For example, the first loan could be 80% of the total amount and the second loan for the remaining 20%, and considered to be your down payment amount. The second loan is generally at a higher rate than the first. Many times, the second loan has a variable interest rate, which means it can fluctuate, causing your payment to fluctuate. The most common piggy back loan combinations are:

Every case is different, though, so you will want to discuss your options with both your real estate agent and your lender to see if you will qualify for a loan without having to pay extra for PMI.

Learn more about Obama Mortgage Relief Plan Qualifications.