PMI stands for private mortgage insurance. It is also named as lenders mortgage insurance in the US. This type of policy is provided to protect the lenders by the private mortgage insurer against the loss if the borrower does not repay. The lenders want their borrowers to take private mortgage insurance if the down payment is less than 20%. There are two types of mortgage insurance private and public. PMI is for the benefit of the lenders but the premiums are paid by borrowers. If the borrower fails to pay debt due to illness or lose of job in that case PMI pays the loans of the defaulter. On most non Government loans PMI saves the lenders. It is benefited to the borrowers in a way that PMI helps to buy a house before initial 20% full down payment exchange for a monthly premium.

Facts about private mortgage insurance are:

With the help of PMI it is possible to buy a house with just 3% to 5% of down payment.

Lender gets protection from PMI as there is a possibility to default for those with only 5% down payment. In that case the lender will get remaining 15% from the Private mortgage insurance.

Generally there are two types of mortgage insurance – one can be bought from the Government and other can be bought from the private sector.

Generally one needs to pay the premium of the mortgage insurance until it reaches to loan-to-value ratio (LTV) hits 80%. But on government loans it is required to pay regardless of the LTV.

The premiums of the mortgage insurance vary from person to person. Typically the lower down payment or lower credit scores the higher premiums. But generally the premiums for $100,000 would be $30-70 per month. On VA (Veterans Affairs) loans and on FHA (Federal Housing Administration) loans there are some upfront fee funding systems in case of mortgage insurance. PMI premiums are made along with the mortgage payment.

It is not necessary to take private mortgage insurance if the home buyer puts down 20% or more when buying a home.

The borrower can send a request to cancel or stop mortgage insurance policy once he makes a certain amount of equity in the house generally 20%.

Normally the lender selects the mortgage insurance company not the borrower and even the premiums are also fixed by them.

When the borrower asks for cancelation of PMI the lender asks for a proof of the equity of the borrower that is secured.

Different lenders have different terms and rates thus it is always better to compare the market to get the better deal.

Though PMI is always is known for helping the lenders but there is no denying the fact that it is a great help to the people who can think of having a house with 3% to 5% of down payment. One can avoid taking PMI insurance with 20% or more down payments for buying a house.