Private Mortgage Insurance

PMI, aka private mortgage insurance, is a type of mortgage insurance from private insurance companies used with conventional loans. Similar to other kinds of mortgage insurance policies, PMI protects the lender if you stop making payments on your home loan. PMI can be arranged by the lender and provided by private insurance companies.

Who is required to have PMI?

Mortgage lenders make many borrowers who don’t have 20% to put down on a home purchase private mortgage insurance (PMI) to protect the lender if the borrower is unable to pay the mortgage. In other words, PMI guarantees your lender will get paid if you are unable to pay your mortgage payments and you default on your loan. For the borrower, it has a benefit as well. Getting private mortgage insurance allows you to purchase a home before you have the full 20 percent of the home’s value saved up for a down payment.

When do I pay PMI premiums?

If you are required to pay private mortgage insurance, it typically makes up a portion of your monthly mortgage payment, in addition to your principal, interest, property tax and homeowners insurance. Similar to interest, property tax and homeowners insurance, payment of your PMI does not build equity in your home.

When does mortgage insurance “fall off” the loan?

Once the borrower has built up a certain amount of equity in the house, typically 20% equity, private mortgage insurance usually may be canceled — which will reduce your mortgage payment and allow you pay less money every month. The lender usually won’t automatically cancel PMI until you’ve reached 22 percent equity based on the original appraised value of the home, or unless you contact them to request cancellation at 20 percent of the current market value.


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