Private mortgage insurance, often called PMI, is something you need to be familiar with when you buy a home in the Orlando mortgage market. If you’re making a down payment that is less than twenty percent, the bank or mortgage lender will almost always require it. When you’re calculating what your monthly mortgage payment will be, it is important to figure in the cost of this insurance as well as property taxes and homeowner’s insurance.

The point is to insure the bank or mortgage lender that they will get their money if you fail to pay on your loan. Particularly, your PMI insurance helps the lender with costs in the event he forecloses on your home. The insurance must be maintained until you have build at least twenty percent equity or at least twenty percent of the loan is paid off.

The cost of PMI can be different from lender to lender. It costs approximately $55 per month for every $100,000 borrowed. When you’re shopping for a mortgage, ask pointed questions about each lenders PMI policy and rate. Otherwise you could be shocked at the time of closing when it’s added to your monthly mortgage payment.

PMI is usually calculated based on the amount of your loan divided by the value of your home. Look at it this way; if you borrow $90,000 to buy a $100,000 home, you have a 90% LTV (loan to value) ratio. The loan to value ratio needs to drop below 80% before you can terminate the insurance.

In recent years, tax law changes made the cost of private mortgage insurance tax deductible, so it is more financially beneficial, pay the insurance, and take a tax deduction. The law currently in effect is up for revision or renewal in January 2010.

Once you have paid off a minimum of twenty percent of your home’s value, you may be able to discontinue PMI some lenders require that you must pay off twenty percent of the mortgage, and some require that you must own twenty percent equity in your property, so read your contract and see how it is written.

Besides reducing the size of the mortgage balance, you also have to establish a sound payment history. Most lenders require that you have not paid your mortgage thirty days late in the past year, or sixty days late for at least two years. They can also require you to show proof that your property value has not declined. If your home value had dropped the lender may require an additional down payment.

In the past homeowners were unaware when they were eligible to suspend their PMI and sometimes continued paying it needlessly for years. Today’s laws require the lender to let you know when you reach 78% of the necessary level of equity or loan satisfaction. If there is undue delay in canceling your PMI, the lender is required repay your premiums to you, and he may be subject to other penalties.

When you take out a mortgage loan, the lender is required to inform you of the approximate date when you will become eligible to discontinue the PMI. If you have an adjustable rate mortgage, this must be calculated based on the rate in effect at the time of the loan origination., You are well advised, however to keep an eye on these things so that you know when you are eligible to discontinue it, and take the initiative to contact your Bank or Mortgage lender.