PRIVATE MORTGAGE INSURANCE (PMI)

Private mortgage insurance issued by private insurance companies (and paid by the borrower – see “PMI Payment” for more information) protects lenders against losses from loans that go into default. It allows lenders to offer loan products with lower down-payments than they otherwise could because, with the mortgage insurance, these loan products qualify for sale to Fannie Mae and Freddie Mac. In some cases, these down payments can be as low as five percent of the cost of the home. PMI does not need to last for the life of the loan – see “Canceling PMI” below for options on when and how to stop PMI coverage. Please note that PMI is different from credit life and disability insurance, which protects the lender against the death or disability of the borrower.

PMI Payment

Depending on the loan program, a borrower will pay PMI monthly (with a few months paid at loan closing), annually (with the first year premium paid at loan closing, or single-premium (with the entire premium paid at loan closing). One advantage of single-premium PMI is that you may be able to roll the premium into your loan balance, which lowers your cash outlay at loan closing.


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