PMI, or Private Mortgage Insurance, is insurance that indemnifies a lender against borrower default on a residential mortgage. The borrower pays the PMI insurance premium. In the US, PMI is typically required when the loan-to-value ratio, or LTV, of the loan is greater than 80%. When home equity is lower than 20%, default risk increases, and PMI protects the lender. Many loans do not need PMI for a high LTV. For example, FHA and VA loans are guaranteed by the government and thus never need PMI. It is often up to the borrower to get the PMI policy canceled once home equity reaches 20% to avoid having to continue to pay premiums. PMI regulations and practices vary from state to state and lender to lender. A local mortgage banker or mortgage broker should know PMI specifics that apply to a particular loan. |
