Why do I need private mortgage insurance?

Private mortgage insurance (PMI) is usually required when a borrower puts down less than 20% of the home’s purchase price.  Its purpose is to protect the lender in case the borrowers can no longer afford their monthly payments and defaults on the loan.   PMI provides the lender with at least partial protection for the lender in case of a loan default and endows the lender with some added security.  The private mortgage insurance is paid by the borrower usually as part of the monthly payment even though the protection is for the lender not the borrower.  For the borrower, it permits a smaller down payment instead of 20%.  When using a mortgage affordability calculator or mortgage payment calculator it is important to know whether the loan is greater than 80% loan to value and requires private mortgage insurance.

Tags: down payment, mortgage affordability calculator, mortgage payment calculator, pmi, private mortgage insurance

This entry was posted on Monday, December 8th, 2008 at 9:02 pm and is filed under Mortgage FAQs. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.