What is Private Mortgage Insurance (PMI)?
Private mortgage insurance (PMI) policies are designed to reimburse a mortgage lender up to a certain amount if you default on your loan and the foreclosure sale is less than the amount you own the lender — that is, the amount of your mortgage loan plus the costs of the foreclosure sale. Most lenders require PMI on loans where the borrower makes a down payment of less than 20%. Premiums are usually paid monthly and typically cost less than one-half of one percent of the mortgage loan. With the exception of some government and older loans, you can drop PMI once your equity in the house reaches 22% and you’ve made timely mortgage payments. Ask your lender for details on the cost of PMI and requirements for canceling it.
