Private Mortgage Insurance (PMI)

What is private mortgage insurance (PMI)?

Private mortgage insurance allows lenders to offer low down payment loans by insuring the top 15-20% of the loan against default.  In other words, this type of insurance protects the lender in a low money down loan, by insuring the amount loaned over 80% to a borrower.

Who pays for private mortgage insurance (PMI)?

The borrower pays the premium for PMI and usually does so by paying a percentage at closing and a monthly premium along with their mortgage payment.

Does the insurer insure the full mortgage amount in a private mortgage insurance policy?

Private Mortgage InsuranceNo, they only insure above a certain percentage.  For example, say a borrower borrows $95,000 on a property they purchased for $100,000.  The lender would require the buyer to buy private mortgage insurance to cover the amount they owe above $80,000 to $95,000, which is $15,000.  The buyer put $5,000 or 5% down on the loan.

Private mortgage insurance is offered by many national insurance companies.

Does a borrower have to pay for this insurance as long as they own the property?

No, once a borrower reaches a certain level of equity in a property, the lender will allow them to drop this coverage.  Usually, the amount of equity required to be achieved is 20% before a lender will let a borrower drop the private mortgage insurance.

Is private mortgage insurance or (PMI) the same as mortgage insurance?

No, mortgage insurance is not PMI, it is an optional policy purchased by a borrower who is concerned they may die or become disabled and will be unable to make their mortgage payments.  If the borrower dies, the insurer will pay a death benefit to the lender to pay off their mortgage.  If the borrower becomes disabled, the insurer will pay a monthly benefit while they remain disabled to be used to make their mortgage payment until they recover.

What else can help me prepare to pass my real estate licensing exam on my first attempt?

Other tips to help you pass your real estate licensing exam on your first attempt:

Real Estate Test Taking Tips

How to Pass the Real Estate Exam

Real Estate Exam Math Made Easy

Also, check out our question of the day videos on our YouTube channel:

PassMasters Real Estate Exam Prep YouTube Channel