What is PMI?
Private mortgage insurance, or PMI, insures the lender against a default. It is required when the borrower is making a cash down payment of less than 20 percent of the purchase price. PMI costs vary from one mortgage insurance firm to another, but premiums usually run about 0.50 percent of the loan amount for the first year of the loan. Most PMI premiums are a bit lower for subsequent years. The first year’s mortgage insurance premium is usually paid in advance at the close of escrow, and there is usually a separate PMI approval process.
Private Mortgage Insurance (PMI) protects lenders against losses that can occur when a borrower defaults on a mortgage. PMI is required on first mortgage purchase transactions when the borrower has less than a 20% down payment. Likewise, it is required on first mortgage refinance transactions when the borrower has less than 20% equity in the property being refinanced. The cost of the mortgage insurance is typically added to the monthly mortgage payment.
Private Mortgage Insurance. This type of insurance is required by lenders for loans with a low equity position. For example, if you purchase a property with less than 20% down payment, the lender will require you to have mortgage insurance. The insurance will cover a percentage of your mortgage should there be a default. Mortgage insurance must be paid each month and is included in your mortgage payment. You must maintain the insurance until you can prove that the equity in the property has reached 20%. In other words, the lender’s exposure has been reduced to 80%. Mortgage insurance is expensive and if possible should be avoided.
