Private Mortgage Insurance (PMI)

Definition of "Private mortgage insurance (PMI)"

Paul Van Zandt real estate agent

Written by

Paul Van Zandtelite badge icon

Realty Professionals of Texas

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!

image of a real estate dictionary page

Have a question or comment?

We're here to help.

*** Your email address will remain confidential.
 

 

Popular Mortgage Terms

The rate charged the borrower each period for the loan of money, by custom quoted on an annual basis. A mortgage interest rate is a rate on a loan secured by a specific property. ...

A contribution to a borrower's down payment or settlement costs made by a home seller, as an alternative to a price reduction. ...

The definition of credit risk is at the core of lending. Banks lend money to businesses and individuals and expect to recover the principal and win interest. Banks offer a variety of loans, ...

A variety of unsavory lender practices designed to take advantage of unwary borrowers. Predatory lending covers much the same ground as Mortgage Scams and Tricks/Scams by Loan Providers. ...

Same as term Bridge Loan: A short-term loan, usually from a bank, that 'bridges' the period between the closing of a home purchase and the closing of a home sale. To qualify for a bridge ...

The most recently published value of the index used to adjust the interest rate on an indexed ARM. ...

The frequency of rate adjustments on an ARM after the initial rate period is over. The rate adjustment period is sometimes but not always the same as the initial rate period. As an example, ...

If you’re a student in medical school, a resident or a medically qualified doctor, you must know the definition of Physicians Mortgage Loan, also known as Doctor Loans. Why? Because, ...

A mortgage on which the borrower gives up a share in future price appreciation in exchange for a lower interest rate and/or interest deferral. SAM's in the private market had a brief ...

Popular Mortgage Questions