Private Mortgage Insurance (PMI)

What is it?

Private mortgage insurance is a loan insurance that protects a lender against loss if a borrower defaults on mortgage payments. Private mortgage insurance allows a borrower to purchase a home with a much lower down payment (as low as 3-5%).

Why does a lender want me to purchase PMI?

Statistical studies show that homeowners with less than 20% invested in a home are more likely to default on a mortgage which makes lending more risky. This is why mortgage lenders generally require mortgage insurance for home loans with down payments under 20%.

How much does private mortgage insurance cost?

Costs, which are usually added to your monthly mortgage payments or paid upfront, depend on the down payment, mortgage type and desired amount of coverage.

Is it possible to cancel PMI?

Once you build enough equity in your home through monthly mortgage payments, it is possible to cancel the private mortgage insurance. Payment plans vary; usually when insurance is cancelled the borrower stops paying premiums, but does not get a refund. Ask your home loan lender to explain the details of the PMI you are purchasing.

Is PMI available for mortgage refinancing?

Yes.

What is the difference between PMI and FHA insurance?

Federal Housing Administration (FHA) mortgage insurance is a government-sponsored insurance program, whereas PMI is private. PMI generally covers 20-30% of mortgage loans while FHA covers 100%. PMI has no maximum loan amount, whereas PHA loans has a maximum which depends on the cost of housing in your area.