What is private mortgage insurance (PMI)?
Private Mortgage Insurance or PMI is an insurance product that aims to protect lenders from bad borrowers, or borrowers that are unable to keep up with the monthly mortgage payments.
When a buyer of a house wants to secure a mortgage or a loan to fund the purchase, he is required to take out private mortgage insurance. This is when the down payment he is able to pay is less than 20% of the purchase price of the house.
When the borrower defaults on his loan, the insurer will file a claim from the insurance company. The insurance company will pay for the remaining balance of the loan.
The PMI works to the advantage of both the lender and the buyer. It enables the buyer to purchase the home for a small down payment. At the same time, it protects the lender against loss in case of the borrower's default.
Under the Homeowner's Protection Act of 1998, you, as the buyer, can expect regular disclosures from your lender with respect to the loan's PMI coverage.
The bank is required to disclose certain information at specified times:
- Upon loan closing, the bank should let you know about your right to request the cancellation of the PMI. It should also let you know when this cancellation can happen. Aside from this, the bank should also let you know that the PMI will automatically be cancelled (when the loan amount reaches 78%), as well as the exemptions, if any, with regards to the automatic termination or request for cancellation. The bank should also provide a written initial amortization schedule for loans that are on a fixed-rate basis.
- Every year, the bank should provide updates as to the amount of the loan, as well as a statement as to who you can contact to determine whether you can already request for cancelation of the PMI.
| Not a bit | Very useful |
- How to calculate private mortgage insurance?
- Is private mortgage insurance required for my mortgage?
- How do you change a property deed and how does it affect title insurance?
- Is title insurance required for a private sale of a home?
- Do you really need title insurance on a foreclosed house?
- Where do I file a complaint about a title insurance company?
- The seller has selected a closing agent to do the title search & insurance. Should I hire my own title search?
- How to check if I have title insurance on my property?
- What is covered by a Fidelity national home owner's title insurance policy?
- Do I need title insurance on a newly built home?
- What is the procedure for submitting property title insurance claims?
- I know you can get a title search done for a foreclosing property but can you get title insurance?
- My deed of trust has the wrong property address. Is this covered by the title insurance?
- I bought a house and now the city sent me a bill to pay a loan on a sewer line. Is this a title insurance claim?
- Title insurance when refinancing - what does it cover?
- Can you buy title insurance after closing?
- Do you need a title search and insurance on a REO (bank owned) property?
- What is the difference between homeowners insurance and landlord insurance?
- What is a short sale and do I need title insurance if I use equity loan to buy?
- How to check a deed (land title), and how title insurance works?