What is PMI?
PMI, also known as private mortgage insurance, is a type of mortgage insurance from private insurance companies. Conventional loans have PMI. This insurance is used when there is less than 20% down payment and is provided on traditional and FHA financing. There are two differences between Conventional PMI and FHA PMI.
That said, Conventional PMI only stays on the mortgage financing until the principal balance reaches the 80% loan to value threshold. FHA Private Mortgage Insurance will remain on the loan, payments will be made to the PMI company unless refinanced to value below 80% or paid off in full. Like other kinds of mortgage insurance policies, PMI protects the lender if you stop making payments on your home loan.
PMI can be arranged by the lender and provided by private insurance companies. If you are required to pay private mortgage insurance, it typically makes up a portion of your monthly mortgage payment, in addition to your principal, interest, property tax, and homeowners’ insurance. Like interest, property tax, and homeowner’s insurance, the amount of your PMI does not build equity in your home.
Private mortgage insurance
In short, PMI is a type of insurance required on conventional loans where the loan amount is greater than 80% of the property value on purchase price. For conventional loans, the PMI may be eliminated once a minimum of 20% equity has been established.
BORROWER PAID MORTGAGE INSURANCE (BPMI)
Is a pre-determined premium amount that is added to your monthly mortgage payment.
LENDER PAID MORTGAGE INSURANCE (LPMI)
Allows the borrowers to waive the monthly premium amount and the overall monthly payment is typically less than a loan with BPMI but with a slightly higher interest rate.
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