What Is Private Mortgage Insurance?

If you want to buy a home without being nervous of financial conditions and fearful of carrying a mortgage, a private mortgage insurance policy, also known as PMI, may provide you with a sense of security and could help you secure a mortgage through a private lender.

Who Does a Private Mortgage Insurance Policy Protect?

PMI is a policy payable to a lender or trustee for a pool of securities that may be required when taking out a mortgage loan. It provides the lender with the assurance that if the mortgage holder is not able to repay the loan, the lender will be protected against any loss of their costs. The rates range anywhere from a low of $55 a month to or an annual high of $1500, based on the amount of loan in question, type of occupancy, loan-to-value (LTV) ratio and a person’s credit score.

Private Mortgage Insurance Requirements

Lenders may require borrowers to commit to this policy for the first two or three years of a loan, until the owner is more personally and financially vested in their own property. The need for a private mortgage insurance policy is usually waived if a home buyer makes more than a 20 percent down payment on their home. In 2007, United States mortgage insurance became tax-deductible, thus making it easier for those interested in the United States real estate market.

Private mortgage insurance serves a very important part in the mortgage industry. Lenders feel more comfortable loaning money and consumers feel more secure about borrowing money, so it keeps the flow of the real estate market going. This can be an especially valuable tool for consumers looking to take advantage of a downward turn in the real estate market. With PMI, consumers with excellent credit history and other contributing factors may be able to purchase a home sooner without waiting years to save a sizable down payment at competitive mortgage rates.