Private Mortgage Insurance (PMI) Definition and Legal Meaning
On this page, you'll find the legal definition and meaning of Private Mortgage Insurance (PMI), written in plain English, along with examples of how it is used.
What is Private Mortgage Insurance (PMI)?
It refers to that insurance company with whom the mortgage lender is attached. If the borrower defaults the repayments, the PMI safeguards and protects the mortagage lenders by the way of compansation.
History and Meaning of Private Mortgage Insurance (PMI)
Private Mortgage Insurance (PMI) is a type of insurance that lenders require from borrowers who put down less than 20% of a home's value as a down payment. The purpose of PMI is to protect the lender against loss if the borrower defaults on the mortgage loan. In other words, PMI is a way for lenders to manage their risk.
PMI has been around for decades, and was created as a way to increase home ownership rates by making it easier for borrowers to obtain mortgages. Before PMI, lenders required much larger down payments (often 30% or more), which made it difficult for many people to buy homes. Today, PMI is a common requirement for many mortgage loans.
Examples of Private Mortgage Insurance (PMI)
The borrower was required to pay an additional $100 per month for PMI since they put down only 10% for the down payment.
The lender calculated the cost of PMI to be $1,500 per year and this was added to the borrower's monthly mortgage payment.
The borrower was able to avoid paying for PMI by putting down 20% for the down payment on their home.
Legal Terms Similar to Private Mortgage Insurance (PMI)
Mortgage Insurance Premium (MIP): This is a type of insurance that is required for certain types of government-backed mortgages, such as FHA loans.
Hazard Insurance: This is a type of insurance that protects the borrower and lender from loss due to damage or destruction of the property, such as from a fire or natural disaster.
Title Insurance: This is a type of insurance that protects the borrower and lender from loss due to problems with the property's title, such as liens or ownership disputes.