What is private mortgage insurance (PMI) and when is it required?
Private Mortgage Insurance (PMI) should not be confused with mortgage life insurance, which pays a loan in full in the event of a borrower’s death. PMI allows you to purchase a home without a large down payment. It does this by protecting the lender from the risks associated with low down payment lending, and is required on all loans with a down payment of less than 20%. Low down payment lending has become increasingly popular, and by purchasing mortgage insurance, lenders are more comfortable with down payments as little as 5%. PMI may be canceled when the loan balance decreases to a certain level, 80% of the current value of the property. If you have questions about when the PMI can be canceled, you may contact one of our mortgage specialists.
Unless you have an FHA or VA loan, you’re typically required to pay for private mortgage insurance (PMI) if you’re making a down payment that’s less than 20% of a home’s appraised value. PMI is an insurance policy that reduces the lender’s risk on these loans, and generally, a monthly premium for PMI is added to the borrower’s monthly mortgage payment.
