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Private Mortgage Insurance (PMI) |
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Private mortgage insurance (PMI) is often confused with mortgage life insurance which provides coverage in the event of a borrower's death, or homeowner's insurance, which protects the homeowner from loss due to damage from fire, flood, or natural disasters. Private mortgage insurance is simply a financial guarantee that insures lenders against loss in the event a borrower defaults on a mortgage. When you borrow money to purchase a home, your lender may require you to purchase PMI if you are making a down payment of less than 20%. In the event that you default on your loan, the private mortgage insurance will either eliminate or reduce the loss to your lender. Homebuyers can also benefit from private mortgage insurance. In many cases it makes it easier for the buyer to afford a home by allowing the buyer to make a low down payment. Many lenders will accept as little as 5% down from a borrower with the guarantee of private mortgage insurance. A borrower who saves $10,000 to use as a down payment on a home can purchase a $100,000 home and use as little as $5000 as a down payment. This allows the buyer to keep the remaining $5000 for other moving expenses. Generally, the borrower pays for private mortgage insurance and an initial premium is collected at the time of closing on the purchase of the home. From that point on, there are different types of payment plans available to the borrower, such as annual and monthly premium payments. The beneficiary of the private mortgage insurance policy is the lender. The good news for the buyer is that on most loans, the borrower can cancel the private mortgage insurance once the loan balance is paid down to 80% of the original property value. In 1999, Congress mandated that private mortgage insurance must be terminated automatically when the loan balance reaches 78% of the original value. In summary, private mortgage insurance provides the lender a guarantee against loss. It can also provide some benefits to the homebuyer by allowing a borrower to purchase a home with a low down payment. Keep in mind that it is not the same as purchasing a mortgage life insurance policy or a homeowner's insurance policy. Below is a list of some mortgage insurance companies.
Commonwealth Mortgage Insurance Company
GE Capital Mortgage Insurance
Home Guaranty Insurance Corporation
Integon Mortgage Guaranty Corporation
Investors Mortgage Insurance Company
Mortgage Guaranty Insurance Corporation
PMI Mortgage Insurance Co.
Triad Guaranty Insurance Corporation
United Guaranty Corporation
U.S. Mortgage Insurance Corporation
Verex Assurance, Inc.
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