What is Private Mortgage Insurance (PMI) and how much does it cost?
PMI may be required by lenders when you put less than 20% equity as a down payment. The purpose of PMI is simple. If you go into default on the loan, PMI insures the lender that they will be guaranteed repayment on a portion of the loan amount. PMI rates will vary from state to state and according to the loan-to-value (LTV) ratio. Typically, the higher the LTV, the higher the PMI premium will be. Some lenders will increase the interest rate to include PMI, others will add it in separately. To find out what your lender does, ask them to disclose their PMI rate to you.
