Private Mortgage Insurance (PMI)
Definition of "Private mortgage insurance (PMI)"
The concept behind a Private Mortgage Insurance (PMI) is pretty simple: it exists to make sure the lender doesn’t lose its money.
What it does is “buy” the possible defaults of a borrower to a lender. Meaning: if the borrower doesn’t pay the premium, the Private Mortgage Insurance (PMI) enters in action and pays it on his/her behalf.
The PMI cost is usually included in the monthly mortgage payment in addition to the principal, homeowner’s insurance, property tax and interest, and just like them, it is a separate thing; it doesn’t build equity to your home.
Why do it?
Well, most of the time you don’t have an option; it is a requirement from the Lender that you get Private Mortgage Insurance (PMI) in order to be able to borrow the money. However, it truly can be good for both parties: the lender doesn’t lose money and the borrower can get a house even if he doesn’t have the whole 20% of the home’s value to use as down payment, since lenders sometimes waive the need of it because of the safety provided by the Private Mortgage Insurance (PMI).
Real estate Tips:
One of the greatest insurances in the world is knowledge! Devour our Real Estate Terms and use our Real Estate Agent Directory to contact a local real estate agent when you're ready to go into the market for/with your house!
Popular Insurance Terms
Financial incentives credited to the policy to encourage the policyowner to keep the policy in force. The incentives may be utilized by: (1) applying them to the policy cash value after a ...
Accidental death benefit option that can be added to a disability income (DI) policy under which a lump sum is payable at the loss of life, dismemberment, or loss of sight. ...
Reserves required by state regulators. Because regulators must assure that an insurance company remains solvent and that it can pay future claims, they set conservative standards for ...
Terms specifying obligations of an insured to keep a policy in force. For example, an insured must pay the premiums due; in life insurance, if death occurs, the beneficiary or the insured's ...
Same as term Fortuitous Loss: loss occurring by accident or chance, not by anyone's intention. Insurance policies provide coverage against losses that occur only on a chance basis, where ...
Process of the continual reinsurance of a ceding company's portfolio of insurance policies. All premiums that have been ceded become earned premiums. ...
Statistical function that displays the probability of determining a stated number of successes in a series of trials in which the probability of success is the same in each trial. In ...
Marketing of insurance through independent agents; also called independent agency system. Independent agents usually represent several insurance companies and try to insure the risk ...
Provision of a reinsurance contract that states that the reinsurance company remains liable for its predetermined share of a claim submitted by an insured, even though the primary insurance ...
Have a question or comment?
We're here to help.