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For Sale by Owner Articles • Owners.com - Mortgages and Financing

What Is Private Mortgage Insurance?

Private mortgage insurance (also called PMI) is insurance provided by a mortgage insurance company to protect a lender in the event of default on a loan. PMI is generally required when a borrower puts less than 20% down on a loan.
The borrower pays for mortgage insurance on a monthly basis in addition to the principal and interest payments that are made on a loan. The lender then transfers the PMI payments to the insurance company.
MI companies offer several options to the borrower. A monthly premium plan requires two monthly premiums to be prepaid at closing, with a fixed premium due monthly.
An annual plan requires one year of premiums paid at time of closing, but offers lower monthly premium payments.
Most buyers are choosing the monthly premium plan.

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