Private Mortgage Insurance

PMI, aka private mortgage insurance, is a type of mortgage insurance from private insurance companies. It is 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. Private insurance companies and lenders provide and arrange the PMI.

Who is required to have PMI?

Mortgage lenders make many borrowers purchase PMI if they don’t have 20% to put down on a home purchase. This protects 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. The borrowers benefit as well. 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?

Private mortgage insurance, typically makes up a portion of your monthly mortgage payment. This is also includes 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 builds up a certain amount of equity in the house, typically 20% equity, they can cancel their PMI. This reduces your mortgage payment and allows you to pay less money every month. The lender usually won’t automatically cancel PMI until you reach 22 percent equity based on the original appraised value of the home. Alternatively, you can contact them to request cancellation at 20 percent of the current market value.