Question:
What's private mortgage insurance (PMI), and can my mortgage lender require me to have it?

Answer:
Lenders generally require you to purchase PMI if you are borrowing more than 80 percent of the value of the home you are purchasing (i.e., your down payment is less than 20 percent). Once you reach 20 percent equity in your house, your lender should remove the requirement for PMI.

PMI guarantees your lender will be paid if you default on your mortgage, and without PMI, you may be unable to qualify for a mortgage. PMI does not protect you against losing your house in the event of a default payment. Moreover, the insurance company may be able to seek recourse against you for any default claim they pay to your lender.

Typically, monthly PMI premiums are $45 to $65 per $100,000 borrowed. The cost of PMI depends on several factors, such as the amount of your down payment, the type of mortgage, and whether you pay premiums on a monthly basis or in a lump sum at closing. PMI premiums can significantly increase your monthly housing cost and are no longer tax deductible (as of 1/1/2014).

If you do not have at least 20 percent for a down payment, you still have a couple of ways to avoid paying PMI premiums. Consider asking if your lender is willing to increase your mortgage interest rate a quarter of a point rather than require PMI coverage. Your monthly payment will increase by roughly the same amount as the monthly insurance premium. Also, certain types of mortgages, such as FHA loans and VA loans (for qualified veterans), do not require PMI. Talk to your lender about FHA loan or VA loan approval.

_{Source: Broadridge Investor Communication Solutions, Inc.
Tax information presented is not to be considered as tax advice and cannot be used for the purpose of avoiding tax penalties. Neither Canandaigua National Bank & Trust nor its affiliated Companies provide tax, legal, or accounting advice. Please consult your personal tax advisor, attorney, or accountant for advice on these matters.}