Private mortgage insurance, also known as PMI, is charged to borrowers who take out a mortgage with less than a 20% down payment.
It is the premium on an insurance policy that insures the mortgage for the lender in the event you default on your mortgage. PMI typically costs between 0.5 and 1.0% of the value of your mortgage every year and can up to $1,000s of dollar over the life of your loan.
Since they only had a 10% down payment, the Jones’ had to pay PMI on their mortgage.
You will have to pay PMI for as long as you have less than 20% equity in your home. However, different lenders have different policies for eliminating PMI.
If home prices rise in your area, you may be required to pay for an appraisal, and actually demonstrate you have 25% equity in your home relative to the appraisal before PMI can be cancelled.
Other lenders may require PMI for a minimum of 5 years, no matter how much prices increase or how many improvements you make to your home to increase the value.
You may also be able to eliminate PMI by refinancing, if you have increased the equity value in your home and can reduce your mortgage to at least 80% loan to home value.« Back to Glossary Index