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Mortgage insurance?

how does mortgage insurance work? I am putting 5% down how long will i have to pay this and how do you get rid of it?

Mortgage insurance is a policy paid for by you that guarantees the lendor that if you shoudl default on the loan that they will at least get repaid what the loan amount is.

This is required on all loans where the downpayment is less than 20% of the price of the house. The reason for this is in case the value of the house drops and you end up owing more on the house than it's worth and then defaulting on the loan.

After you have carried PMI for 2 years, you can have the ratio re-evaluated and if you owe less than 80% of what the property is worth, then you can drop PMI. You will have to pay for an appraisal out of your own pocket, though (about $300-400), so keep up with the market in your area so you have an idea of what it is worth.

If your appraisal comes back and shows that the loan is less than 80% of the appraised value, mail a copy of the appraisal and a request to the mortgage company to drop the PMI. You must, however, carry it for at least 2 years.

PMI will automatically be dropped once the mortgage balance reaches 80% of the original appraisal on the house. Federal law requires this. However, if your house is appreciating at a fast rate, you will be wise to hire an appraiser and have it dropped. The mortgage company only keeps up with the balance on the mortgage. They do not keep up with the increase in the value of the property.

You pay PMI until you have 20% equity in your home. You can avoid PMI by doing an 80/20 mortgage. 80% of the cost of the home is in a traditional mortgage and the other 20% is in a personal loan. Be very careful about the types of loans you get, the interest rates, payoff schedules, etc.
Mortgage insurance will drop off (assuming you are paid ontime every month) after 7 years.
You can have it dropped off once you have at least 20% of the principle paid off.
Buyers with less than a 20 percent down payment are normally required to pay PMI. PMI protects a lender against loss if you default on the loan. With PMI its possible for you to buy a home with 5 percent down.
There is a mortgage calculator and more info at the Federal Reserve Board web site here:
www.frbsf.org/publications/con...
www.yourpropertypath.com
How it works: You pay an insurance premium, usually monthly. That money pays for your mortgage insurance policy. If you ever default, your bank has some protection against losses.

Putting 5% down, it's likely it would take 10-15 years before it went away by itself, since it takes a long time to pay down your principal balance to below 80%.

But, after a minimum of 2 years, you should be able to contact your lender and find out if you can get a new appraisal and get rid of it. Don't spend the money unless you're pretty certain you're past the 80% mark.
10 years in mortgage banking