Private Mortgage Insurance (PMI) (PMI)

Insurance offered by a private insurance company that protects the bank against loss on a defaulted mortgage up to the limit of the policy (usually 20 to 25 percent of the loan amount). PMI is usually limited to loans with a high loan-to-value (LTV) ratio. The borrower pays the premium.

Insurance that provides financial protection to your lender if you default on your mortgage payment. By purchasing PMI, a homebuyer may be able to obtain a mortgage with little or no down payment.

Protects the lender against a loss if a borrower defaults on the loan. It is a payment usually required of a borrower for loans in which a down payment is less than 20 percent of the sales price, or in a refinancing, when the amount financed is greater than 80 percent of the appraised value. When you acquire 20 percent equity in your home, PMI is cancelled. Depending on the size of your mortgage and down payment, these premiums can add $100 to $200 per month or more to your payments.

When you buy a home with a down payment of less than 20% of the purchase price, your lender may require you to buy private mortgage insurance (PMI), which protects the lender against the risk that you may fail to repay your loan.

The premiums you can expect to pay will vary, but typically come to about 0.5% of the total amount you borrow.

For instance, on a $150,000 mortgage, a typical annual PMI premium would be $750, which is 0.5% of $150,000. Divided into monthly payments, this premium would come out to $62.50 a month.

You can usually cancel your PMI when you meet certain criteria. Generally, this is when the balance of the mortgage is paid down to 80% of either your home's original purchase price or its appraisal value at the time you took out the loan. You can check if it's possible to cancel your PMI by reviewing your annual mortgage statements or by calling your mortgage lender.

If you forget to cancel your PMI, your lender is required by federal law to end the insurance once your outstanding balance reaches 78% of the original purchase price or appraisal value at the time you took the loan or you have reached the mid-point of the loan term, provided you meet certain requirements.

The lender must give you information about the termination requirement at closing. There are some exceptions to the termination rule, including high risk mortgages, VA and FHA mortgages, and those negotiated before July 29, 1999.

1. Protects the lender against a loss if a borrower defaults on the loan. It is usually required for loans in which the down payment is less than 20 percent of the sales price or, in a refinancing, when the amount financed is greater than 80 percent of the appraised value.
2. Insurance provided to Downeast Mortgage Corporation by private institutions to help lessen the risk of loss on certain loans.

See: mortgage insurance.

Insurance purchased by a buyer to protect the lender in the event of default. The cost of mortgage insurance is usually added to the monthly payment. Mortgage insurance is generally maintained until over 20 Percent of the outstanding amount of the loan is paid or for a set period of time, seven years is normal. Mortgage insurance may be available through a government agency, such as the Federal Housing Administration (FHA) or the Veterans Administration (VA), or through private mortgage insurance companies (PMI).