Private Mortgage Insurance (PMI)
Definition of "Private mortgage insurance (PMI)"
The concept behind a Private Mortgage Insurance (PMI) is pretty simple: it exists to make sure the lender doesn’t lose its money.
What it does is “buy” the possible defaults of a borrower to a lender. Meaning: if the borrower doesn’t pay the premium, the Private Mortgage Insurance (PMI) enters in action and pays it on his/her behalf.
The PMI cost is usually included in the monthly mortgage payment in addition to the principal, homeowner’s insurance, property tax and interest, and just like them, it is a separate thing; it doesn’t build equity to your home.
Why do it?
Well, most of the time you don’t have an option; it is a requirement from the Lender that you get Private Mortgage Insurance (PMI) in order to be able to borrow the money. However, it truly can be good for both parties: the lender doesn’t lose money and the borrower can get a house even if he doesn’t have the whole 20% of the home’s value to use as down payment, since lenders sometimes waive the need of it because of the safety provided by the Private Mortgage Insurance (PMI).
Real estate Tips:
One of the greatest insurances in the world is knowledge! Devour our Real Estate Terms and use our Real Estate Agent Directory to contact a local real estate agent when you're ready to go into the market for/with your house!
Popular Insurance Terms
Rate of return computed by dividing the current annual dividend (if a stock) or annual coupon amount (if a bond) by the amount paid for that financial instrument. ...
Arrangement by which the insured agrees to incur a given degree of variability in the ultimate total costs associated with financing its losses. ...
Account that is similar in form to the health plan flexible spending account (FSA) with contributions to this account used to reimburse employees who are parents for expenses at a ...
Trust in which the trustee distributes capital and income to the beneficiaries of the trust according to their economic needs. ...
Clause in the Standard Fire Policy and many other property insurance policies that excepts coverage for losses caused by riot or civil commotion. Coverage for riot and civil commotion can ...
Maximum amount of a specified type of insurance coverage, according to underwriting guidelines, that an insurance company feels it can safely underwrite on a particular exposure without ...
Financial analysis method established by the national association of insurance commissioners (naic) to detect problems of property and casualty insurance companies and life and health ...
Common element in property insurance that excludes electrical damage or destruction of an appliance unless the damage is caused by a resultant fire. ...
Requiring assets and liabilities of an insurance company to go up or down together on a proportional basis. The duration of the asset and liability should be approximately the same. For ...
Have a question or comment?
We're here to help.