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 Mortgage Terms
A government-owned or -affiliated lender that makes home loans directly to consumers. With minor exceptions, government in the U.S. has never loaned directly to consumers, but housing banks ...
A lender who delivers loans to another (usually larger) lender against prior price commitments the larger lender has made to the correspondent. Mortgage brokers sometimes evolve into ...
A mortgage on which the borrower gives up a share in future price appreciation in exchange for a lower interest rate and/or interest deferral. SAM's in the private market had a brief ...
A multi-lender Web site that offered borrowers the capacity to shop among multiple competing lenders. ...
Total costs charged to the borrower that must be paid at closing, by the borrower, the home seller, or the lender. In dealing directly with a lender, settlement costs can be divided into ...
The sum of all interest payments to date or over the life of the loan. This is not a good measure of the cost of credit to the borrower because it does not include upfront cash payments and ...
The definition of affordability in real estate is simply a buyer’s capacity to afford a house. Affordability is usually expressed in terms of the maximum amount a buyer will be able ...
The party who services a loan, who may or may not be the lender who originated it. ...
The amount of the original loan remaining to be paid. It is equal to the loan amount less the sum of all prior payments of principal. ...
Have a question or comment?
We're here to help.