Private mortgage insurance (PMI) is generally a requirement when a property is purchased with a down payment that is less than 20% of the value of the home or property. This insurance, provided by private mortgage insurance companies, protects lenders against the costs of foreclosure. It allows lenders to accept lower down payments than they normally would. Without mortgage insurance, many individuals and families would not be able to purchase property unless they were able to pull together a 20% down payment.
There is an inverse relationship between PMI and the down payment: the cost of PMI increases as the amount of the down payment decreases. A PMI premium is added to the monthly mortgage payment.
Terminating a private mortgage insurance policy is a decision that rests with the lender. In most cases, the lender will allow cancellation of mortgage insurance when the loan is paid down to 80% of the property’s original value. Generally, PMI must be paid for one or two years before you can apply to remove it. A good real estate appraisal company can advise you on PMI removal when the time comes.
