Interest Rates are based on credit and PMI (Private Mortgage Insurance) is based on what type of loan you will be obtaining. It is required both loans that have less then 20% down. FHA calls it MIP (Mortgage Insurance Premium) and they have slightly different numbers.
What is PMI?
When you make a down payment of less than 20%, the lender requires private mortgage insurance, or PMI. The policy protects the lender from losing money if you end up in foreclosure. PMI also is required if you refinance the mortgage with less than 20% equity.
Private mortgage insurance fees vary, depending on the size of the down payment and your credit score, from around 0.3% to about 1.5% of the original loan amount per year. Some years, PMI premiums are tax-deductible and some years they’re not, depending upon the whim of Congress.
PMI can be canceled
Your lender must automatically cancel PMI when your outstanding loan balance drops to 78% of the home’s original value. This probably will take several years.
You can speed up the cancellation of mortgage insurance by keeping track of your payments. Once the loan balance reaches 80% of the home’s original value, you may ask the lender to discontinue the mortgage insurance premiums.
To put it another way: You can request cancellation of mortgage insurance when the loan-to-value ratio drops to 80%. The lender is required to cancel private mortgage insurance when the loan-to-value ratio drops to 78%.
*** FHA has different standards. Please speak with your loan officer with any questions.