Loan Officer with customer
Seller Negotiations: Loan Officer and Realtor Roles
April 13, 2021
home offer escalation clauses
On Home Offer Escalation Clauses and Their Uses
July 13, 2021
Show all

Private Mortgage Insurance: Basics, Purpose and Types

Mortgage Insurance

There are a few different potential costs that may come with your mortgage in a homebuying situation, and one that’s present for many buyers is private mortgage insurance. Abbreviated PMI, private mortgage insurance is a type that’s meant to protect lenders, particularly in cases where they’re offering loans for homebuying situations with low down payments, and will often be required in these circumstances.

At Primary Residential Mortgage, we’re happy to offer great mortgage rate and a wide range of mortgage programs, including some that may involve or even require PMI for borrowers. What exactly is private mortgage insurance and its types, why is it important and often required, and how can you eventually get rid of it as part of your monthly payments? This two-part blog series will go over everything you need to know about PMI.

Private Mortgage Insurance Basics and Purpose

Speaking as simply as possible, private mortgage insurance is actually a form of insurance that allows the lender to be paid if the borrower defaults on the mortgage. It’s common in situations where the borrower is paying less than 20% of the home purchase price in a down payment – this down payment is often the primary risk-mitigation method lenders take, so when it’s diminished through the offering of a low down payment, lenders need to mitigate in another way.

For PMI, the homeowner pays an insurance premium as part of their monthly mortgage payment. Because so many buyers today are paying under 20% down, PMI is very common. However, once you’ve gained enough equity in your home, you can often eliminate PMI as a need (more on that in part two of our series).

Types of PMI

There are several different types of PMI that might be utilized for a given mortgage situation:

  • Buyer-paid PMI: The most common type, where the buyer pays a monthly premium that’s typically added to your normal monthly mortgage payment.
  • Single-premium PMI: When the buyer pays a single lump premium at the start of the mortgage, considered a closing cost. This payment is non-refundable, even if you refinance later.
  • Split-premium PMI: When a lump sum is paid at closing, but smaller monthly premiums are also paid. This is a common option for buyers with a high debt-to-income ratio.
  • Federal home loan PMI: Only available for FHA loans, this is actually required for down payments of 10% or less. It usually involves split-premium payments, and can be lifted only after a minimum of 11 years or with refinancing.
  • Lender-paid PMI: The lender pays for the insurance, but also presents higher interest rates to the buyer.

For more on private mortgage insurance, or to learn about any of our mortgage rates or home loan services, speak to the staff at Primary Residential Mortgage today.

*PRMI NMLS 3094. PRMI is an Equal Housing Lender. Some products and services may not be available in all states. Credit and collateral are subject to approval. Terms and conditions apply. Programs, rates, terms, and conditions are subject to change and are subject to borrower(s) qualification. This is not a commitment to lend. Opinions expressed are solely my own and do not express the views of my employer.

Translate »