{"id":5145,"date":"2022-02-16T18:18:36","date_gmt":"2022-02-16T23:18:36","guid":{"rendered":"https:\/\/www.morty.com\/resources\/?p=5145"},"modified":"2023-11-27T17:54:52","modified_gmt":"2023-11-27T22:54:52","slug":"what-is-pmi","status":"publish","type":"post","link":"https:\/\/www.morty.com\/resources\/mortgage-101\/what-is-pmi","title":{"rendered":"What is PMI? How Private Mortgage Insurance Works"},"content":{"rendered":"\n
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Coming up with a down payment for a home can make even the most avid saver quake in their boots \u2014 it’s a big chunk of change. <\/p>\n\n\n\n

And if you plunk down less than a 20% down payment, you’ll make extra payments in the form of private mortgage insurance<\/a> (PMI). <\/p>\n\n\n\n

So, what is PMI, how much does it cost, and how do you make payments? We’ll touch on all of those answers and even discuss ways you can avoid PMI. <\/p>\n\n\n\n

Read on to learn about all things PMI (and if your head is spinning from all the mortgage acronyms \u2013 we\u2019ve got a homebuyer’s guide to decoding mortgage acronyms<\/a> to help there, too!).<\/p>\n\n\n\n

What is Private Mortgage Insurance?\u00a0<\/h2>\n\n\n\n

In short, PMI is a type of insurance that protects your lender if you default on your loan. Your lender will probably have you make PMI payments if you can’t come up with a down payment greater than or equal to 20% of the loan amount. <\/p>\n\n\n\n

For example, let’s say you borrow $150,000 to buy a home. You’ll need to come up with a $30,000 down payment to avoid PMI. <\/p>\n\n\n\n

PMI only applies to conventional loans, or loans not backed by the U.S. government. You may have heard of other types of mortgage insurance such as the mortgage insurance premium (MIP) for FHA loans \u2013 but MIP is not the same as PMI.<\/p>\n\n\n\n

Lenders typically allow you to request that PMI be canceled at 80% principal loan balance \u2013 the point at which your home has reached 20% equity. If you don\u2019t request a cancellation, your lender is required by law to remove it when your principal loan balance reaches 78% of the original value of your home. <\/p>\n\n\n\n

But there are also other types of PMI that don’t allow you to discontinue payments quite so easily. We’ll take a closer look at those types below. <\/p>\n\n\n\n

How Much Does PMI Cost? <\/h2>\n\n\n\n

The amount you’ll pay for PMI depends on your loan type.<\/p>\n\n\n\n

PMI only applies to conventional loans. When you get a conventional loan, you can choose between mortgage types, including an adjustable-rate mortgage (ARM) and a fixed-rate mortgage. <\/p>\n\n\n\n

With an ARM, you may pay more for PMI because the interest rate can go up or down based on market conditions, making it riskier. The interest rate for fixed-rate mortgages, on the other hand, stays the same.<\/p>\n\n\n\n

You will find information about your PMI payments as part of your Loan Estimate<\/a> and Closing Disclosure<\/a>, two documents that disclose all the details about your mortgage loan.<\/p>\n\n\n\n

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Different Types of PMI <\/h2>\n\n\n\n

Under the PMI umbrella, you can find four different types of PMI. Take a look at each type: <\/p>\n\n\n\n