Private Mortgage Insurance (PMI) is a type of insurance that protects lenders from the risk of default and foreclosure.
PMI, or Private Mortgage Insurance, is a policy that borrowers must purchase when they buy a home with less than a 20% down payment. It's designed to protect lenders in case the borrower defaults on the loan. PMI is typically required by lenders for conventional mortgages if the borrower's down payment is less than 20% of the home's purchase price.
PMI is usually required when a homebuyer opts for a conventional mortgage and makes a down payment that is less than 20% of the home's purchase price. This insurance is a lender's way of ensuring protection against the increased risk associated with a lower down payment.
PMI premiums are typically added to your monthly mortgage payments. The cost varies depending on the size of the down payment and loan, but it generally ranges from 0.3% to 1.5% of the original loan amount per year.
Borrowers can request the removal of PMI when they gain at least 20% equity in their home, either through repayments or appreciation in home value. Lenders are also required to automatically terminate PMI when the mortgage balance reaches 78% of the original home value, assuming the borrower is in good standing.
While PMI adds an extra cost to your monthly mortgage payment, it enables borrowers to purchase a home without a large down payment, making homeownership more accessible.