What is Private Mortgage insurance?
Private mortgage insurance (PMI) is provided by an insurance company to the lender for a part of the outstanding balance of a loan. In case of foreclosure the lender can collect the insurance if the sale proceeds do not cover the outstanding balance of the loan. It is a risk management tool used by lenders to reduce their risk on some loans. Loans with an LTV of less than 80% usually do not require PMI.
Private Mortgage Insurance, or PMI, is insurance purchased by the buyer to protect the lender in case the buyer defaults on the loan. PMI is generally applied when you put down less than 20% of the home’s purchase price. The reason is this: With 20% down, you are considered a low risk. Even if you default the lender will probably come out ahead because they’ve only loaned 80% of the home’s value and they can probably recoup at least that amount when they sell the foreclosed property. But with 5% or 10% down, the lender has a lot more invested in the loan and if you default, they will almost surely lose money. This is why lenders require buyers to purchase PMI if they put down less than 20%. It’s insurance that, no matter what happens, the lender will recoup its investment. How does PMI increase your buying power?
Private Mortgage Insurance, or PMI, is insurance purchased by the buyer to protect the lender in case the buyer defaults on the loan. PMI is generally applied when you put down less than 20% of the home’s purchase price. The reason is this: With 20% down, you are considered a low risk. Even if you default the lender will probably come out ahead because they’ve only loaned 80% of the home’s value and they can probably recoup at least that amount when they sell the foreclosed property. But with 5% or 10% down, the lender has a lot more invested in the loan and if you default, they will almost surely lose money. This is why lenders require buyers to purchase PMI if they put down less than 20%. It’s insurance that, no matter what happens, the lender will recoup its investment.
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 owe 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.
Private Mortgage Insurance (PMI) is taken out to cover loss by a lender if a borrower defaults on payments. PMI is similar to insurance by a government agency such as FHA, except that it is issued by a private insurance company. Generally, this insurance is required by the lender when the down payment is less than 20% of the property value. The premium is paid by the borrower and is included in the mortgage payment.
