Private Mortgage Insurance (PMI)
Private mortgage insurance is required on majority of all loans when you are putting less than a 20% down payment. If a borrower can't afford a 20% down payment, a mortgage lender will look at the loan as a riskier investment and require the homebuyer to have PMI, also known as private mortgage insurance.
PMI protects the home mortgage lender in the event that
you default on your mortgage and the home goes into foreclosure. Think of it as a life
insurance policy for the home mortgage lender, if the mortgage dies (goes into
foreclosure) the home mortgage lender can still recoup the money owed on your loan
from private mortgage insurance (PMI).
There are two ways to remove PMI either the home
rises in value 20% or you pay the balance down 20%. Whichever occurs first you can
then contact your home mortgage lender to discuss options on how to remove your PMI
payment. Once PMI is removed you never have to pay it on that loan again.