What is private mortgage insurance?
Private mortgage insurance, also called PMI, is a type of mortgage insurance you might be required to pay for if you have a conventional loan. Like other kinds of mortgage insurance, PMI protects the lender—not you—if you stop making payments on your loan.
PMI is arranged by the lender and provided by private insurance companies. PMI is usually required when you have a conventional loan and make a down payment of less than 20 percent of the home’s purchase price. If you’re refinancing with a conventional loan and your equity is less than 20 percent of the value of your home, PMI is also usually required.
Important Note: Private mortgage insurance protects the lender—not you. If you fall behind on your payments, PMI will not protect you and you can lose your home through foreclosure.
Private Mortgage Insurance and Mortgage Payment Insurance ARE NOT THE SAME.
Private Mortgage Insurance protects the lender.
Mortgage Payment Insurance protects you, the borrower.
How do I pay for PMI?
There are several different ways to pay for PMI. Some lenders may offer more than one option, while other lenders do not. Before agreeing to a mortgage, ask lenders what choices they offer.
The most common way to pay for PMI is a monthly premium. This premium is added to your mortgage payment.
Sometimes you pay for PMI with a one-time up-front premium paid at closing. If you make an up-front payment and then move or refinance, you may not be entitled to a refund of the premium.
Sometimes you pay with both up-front and monthly premiums.
In either case, both up-front premiums and the premium added to your monthly mortgage payment, are shown on your Loan Estimate and Closing Disclosure.
Lenders might offer you more than one option. Ask the loan officer to help you calculate the total costs over a few different timeframes that are realistic for you.
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