PMI - Private Mortgage Insurance
The definition of mortgage term: Private Mortgage Insurance
Private Mortgage Insurance (PMI) is paid by the borrower to protect the lender if the borrower were to default on the loan. PMI is typically required for loans with a down-payment smaller than 20% except with VA and FHA loans. Insurance rates can range from .5%-6% each year. The percent of the premium is influenced by the LTV, credit score, and whether the loan has a fixed or variable rate. Your monthly PMI payment is put into an escrow account. Your lender then uses this account to pay the yearly insurance premium when due. The Homeowners Protection Act of 1998 requires lenders to automatically discontinue PMI once you have 22% equity in your home.
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