What Is Private Mortgage Insurance (PMI) And Why Do I Pay It?

TL;DR

PMI, or private mortgage insurance, is a policy that protects your lender if you stop making your mortgage payments, and you are required to pay PMI if your down payment is less than 20% of the appraised value of the home.

Transcript

One of the most common questions I get asked in a real estate closing is what is PMI and why am I paying it? I'm Tiffany Webber. I'm a real estate lawyer in Mooresville, North Carolina. And I like to make videos, just like this one, educating you about the ins and outs of real estate law and real estate closings. First things first let's define PMI... Read More

Key Insights

• ✋ PMI stands for private mortgage insurance and protects lenders in case borrowers stop making mortgage payments.
• 👏 PMI is required for borrowers with a down payment less than 20% of the home's appraised value.
• 💦 Dropping PMI is possible once you have paid down your loan to 80% of the home's original appraised value.
• ⚾ PMI costs vary based on the loan amount and can be significant.
• 📏 Different loan types may have different rules regarding PMI.
• 😚 It's important to understand the details of PMI from your lender before closing on a mortgage.
• 💦 Paying down your loan quicker can make you eligible to drop PMI earlier.

Questions & Answers

Q: What is PMI and why am I paying it?

PMI, or private mortgage insurance, is a policy that protects the lender if you stop making your mortgage payments. You are paying it because your down payment is less than 20% of the home's appraised value.

Q: How can I find out when I can drop PMI from my payment?

Your lender will provide a letter explaining when you will be eligible to drop PMI. You can also look at your original amortization schedule or pay down your loan to 80% of the home's original appraised value.

Q: Are the rules for PMI the same for all types of loans?

No, the rules for PMI are different for different types of loans. It's best to talk to your lender to understand how much you'll pay and for how long based on your specific loan.

Q: How much can PMI cost?

The cost of PMI depends on your loan amount and can vary from a few hundred to thousands of dollars a year. Dropping PMI can significantly lower your monthly payment.

Summary & Key Takeaways

• PMI stands for private mortgage insurance and is an insurance policy that protects the lender in case the borrower stops making mortgage payments.

• PMI is required if the borrower's down payment is less than 20% of the home's appraised value.

• The amount of PMI depends on the loan amount and can be thousands of dollars a year.