What is Private Mortgage Insurance (PMI)?
Private Mortgage Insurance is insurance you are required to pay if you have less than 20% down to buy a home. When you purchase a home with either no down payment, or a smaller amount such as 5% to 10% down, the mortgage company will demand that you take on private mortgage insurance. Typically, it's simply added to your recurring monthly payments, but it's also possible to buy it upfront and add it into your closing costs.
The private mortgage insurance company is basically providing protection to the lender in the case of a default. You'll typically want to cancel the PMI coverage once you have repaid 80% of your mortgage. Typically, however, you'll have to have a clean record on your mortgage in terms of no late or missed to qualify for this.
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Updated Jan 17, 2011