What is Private Mortgage Insurance (PMI)?

PMI kicks in when you are not able to make a down payment of 20% or more on the purchase of your new home. It protects lenders against the risk of a low down payment if someone eventually stops making loan payments and the property goes into foreclosure. The benefit as a borrower is that you can afford a more expensive house and put down less than 20% to get the home of your dreams. While there is an additional cost on your monthly payments for PMI, it does allow for more flexibility when house hunting.

The price of private mortgage insurance is based on loan-to-value ratio, type of loan, credit score, debt-to-income ratio, property type, and amount of coverage required by the lender. Usually, the price is included in your monthly payment. Discuss different options with your Mortgage Originator. 

Eventually, it will be possible to cancel your PMI when the loan balance is reduced. Recent Federal Legislation requires automatic termination of mortgage insurance for many borrowers when their loan balance has been amortized down to 78% of the original property value, however, this applies only to single-family homes. If you have any questions about when your mortgage insurance could be canceled, please get in touch with your Mortgage Originator.