Private mortgage insurance (PMI) is defined as protecting the lender if you stop making payments on your loan. It is the Insurance purchased by a buyer to protect the lender in the event of default.
Private Mortgage Insurance Explained
If your down payment on a home is less than 20 percent of the appraised value or sale price, your lender will require you to get mortgage insurance. A mortgage insurance policy protects your lender in case you default on the payments.
If the mortgage holder stops paying the loan, the PMI policy protects the lender by paying the costs of foreclosing on a house. PMI premiums are added to your monthly mortgage payment. You may be able to cancel private mortgage insurance after a few years based on certain criteria, such as paying down your loan balance to a certain amount.
If you are making a down payment of less than 20 percent, be sure you know if PMI is required and how much the PMI will add to your monthly payments. Not making on-time payments may delay when you can cancel your PMI. Before you commit to paying for mortgage insurance, find out the specific requirements for cancellation.
Don’t confuse PMI with mortgage life insurance, which is designed to pay off a mortgage in the event of a borrower’s death or disability.
Cost of Primary Mortgage Insurance
The cost of mortgage insurance is usually added to the monthly payment. Mortgage insurance is generally maintained until over 20 Percent of the outstanding amount of the loan is paid or for a set period of time, seven years is normal. Mortgage insurance may be available through a government agency, such as the Federal Housing Administration (FHA) or the Veterans Administration (VA), or through private mortgage insurance companies (PMI).
