What Is Private Mortgage Insurance (PMI)?
Summary: Private Mortgage Insurance (PMI) is a type of insurance certain borrowers are required to pay. PMI is not paid for the entire life of the loan. Once a borrower has reached 20% equity, they can request the lender to remove the PMI. Once a borrower has reached 22% equity, their lender automatically removes the PMI.
Private Mortgage Insurance (PMI) is a type of insurance certain borrowers are required to pay. If a borrower is in the market to buy a house or refinance their home and has less than 20% in equity, they may be required to pay PMI.
PMI is unique compared to other forms of insurance as it protects the mortgage lender. Purchasing or refinancing an existing home is an amazing opportunity and mortgage lenders are happy to help homeowners. At the same time, lenders also have to protect themselves against what-if situations like falling back on a loan. Borrowers purchasing a housing loan with less than 20% down or having equity of less than 20% within their home can be a risk factor for mortgage lenders. The PMI helps to safeguard lenders in case something happens. In addition, PMI is not paid for the entire life of the loan.
A few factors are considered when determining a borrower’s PMI. Such factors can include how much the borrower puts down on their home, the mortgage amount, the length of the loan, and the buyer’s credit score. Although an additional cost, PMI helps borrowers purchase homes with less than 20% down. Purchasing a home with less than 20% down is doable and done by many– PMI gives mortgage lenders the trust in doing so!
Borrowers pay their PMI until they have enough equity (usually 20 to 22%) for the lender to no longer consider the housing loan a risk. After a borrower has reached 20% equity, they can request the mortgage lender to remove the PMI. Once a borrower has reached 22% equity, their lender must automatically remove the PMI.
There are a few types of PMI: borrower-paid mortgage insurance, single-premium mortgage insurance, lender-paid mortgage insurance, split-premium mortgage insurance, and federal home loan mortgage protection (MIP). Our Hall Financial mortgage experts are here to answer questions and help you choose the right option for you and your financial needs!
For more information, chat with us at callhallfirst.com or give us a call at 866-Call-Hall.