PMI insurance basics and how to use them means learning what private mortgage insurance is, why it needs to be obtained in some instances and why it might not be required in other instances. Taking a few minutes to learn just a bit about PMI can end up saving a lot of money on certain mortgages, for a fact.

Usually, if you can't put a 20% down payment on the purchase of a home you'll most likely be required by the lender to obtain PMI, which is an insurance that protects the lender itself should you default on the mortgage. PMI insurance [http://www.themoneyalert.com/mortgageinsurance.html] is usually a good idea, as a lender might reduce the interest rate on a loan which is covered by such insurance.

PMI payments vary in cost among insurers, but the rule normally is that it will run about. 5 of 1% of the value of the loan. Don't forget, also, that there is no tax deduction allowed for private mortgage insurance. Figuring out PMI is easy. As an example, a $100, 000 mortgage with a $10, 000 down payment will mean that $90, 000 times. 005 will yield a $450 PMI annual payment.

Most lenders -- who have taken out the PMI for you -- will divide that payment into 12 equal installments, adding an additional $37. 50 to your monthly mortgage payment. Most buyers end up obtaining PMI because a 20% down payment on a home -- in even today's down market -- can be a great deal of money.

After a time, when the loan to value or LTV of the home (think of equity) has reached 80% or 1/5 of the principal balance, PMI can then be eliminated under most cases. This can be quite a few years in the case of more than a few mortgage types, though. Always keep track of payments made on the principle and when the LTV has hit 80%, check with the lender to see if it can be eliminated. If you are disciplined you can then allocate those extra funds to an early mortgage payoff schedule.

Under the law, once LTV reaches 78%, lenders are normally required to eliminate it regardless. There are exceptions, though, including mortgages that are considered high risk, such as those that are called "no doc" or reduced documentation mortgages. In those cases, a lender can require PMI until LTV reaches 50%.