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What is private mortgage insurance (PMI) and how does it work?

April 26, 2017PMI private mortgage insurance

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What is private mortgage insurance (PMI) and how does it work?

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Private Mortgage Insurance (PMI), or Mortgage Insurance Premium (MIP), shields lenders against the possibility of default. PMI makes homeownership possible for first-time buyers. This may be billed monthly, annually, as an initial lump sum or some combination of all options. Mortgage insurance protects the lender in cases where the borrower is not able to put down a 20% deposit. Mortgage life, credit life or disability insurance, designed to pay off a mortgage in the event of a borrower’s death or disability, are all separate from PMI and should not be considered the same.