Its a good thing. Without it, you wouldn't be owning a home, and for the minor cost of the insurance, you're doing very well. Once your LTV has dropped below 80% either by your paying down the loan to the 80% LTV level, or your house has increased in value so much that your 95% loan is now a 79% loan, then you can apply to the bank to drop the insurance policy as the LTV has dropped to less than the 80% threshhold.
Once you get close to the 20% mark- start talking to the lender to see specific steps to remove this charge. Keep in mind - you are not the beneficiary.
This is a misconception sometimes and cannot be reiterated enough.
Before you close - you might want to have them give you exact detail on the terms. Please don't leave it to chance - and yes, your premium is in keeping with today's numbers.
Many mortgages with 5% down do require MI (Mortgage Insurance) but there are a few ways around it. It's true that a couple of months ago loans were being pulled off the market quickly, especially those that had favored buyers with less then 20% down. However, those loans are coming back and by doing an 80/15/5 (First note is 80%, second is 15%, buyer puts down 5%) you can avoid MI altogether. I recently had a buyer qualified by two different lenders doing an 80/20 and no MI. In fact, we are in contract now.
However, if you find for some reason that you don't qualify for those programs, you can sometimes prepay MI and avoid paying it on a monthly bases. I sold a home about 2 months ago and we asked the seller to pay $3000 in buyers prepaids which we used to prepay the MI, saving a few hundred dollars a month for the buyer.
Prepaying the MI isn't always the best deal, however. You can determine which is best, prepaying or paying on a monthly basis, by taking the MI and multiplying it by 24 (2 years) and seeing which is less. I use 2 years because that is the mark that most recently has been used by lenders for removing the MI from the loan. As Ute noted below, the lender will not necessarily remove the MI on their own, you will have to apply for removal and jump through a few hoops to get it done, but it will be well worth it!
Good luck to you, and congratulations.
That is a great question. The answer is maybe. You are not required to put down twenty percent to eliminate mortgage insurance. What you need is down payment money and an appraisal that can equal the twenty percent. Sometimes you can even do it with only equity but it is getting more difficult in the last few months.
Honestly, your lender should be walking you through all of this and helping to explain the purpose of mortgage insurance, etc.
This does sound fairly typical and it is good to see that you looked into the details very well. Make sure you discuss all of your concerns and questions with your lender. And, don't be afraid to talk to a couple different lenders.
Here in Seattle, you have a lot of options and my biggest concern when dealing with any lender is lack of communication. I try my hardest to only work with lenders who communicate and explain the situation completely....especially to first time home buyers as you need to be sure of what you are getting involved with. If you do not feel that your lender is communicating well with you, make sure that you are careful and understand everything happening.
Congrats on your coming new home! I love the Seattle condo market and you made a wise investment =)!