What is Private Mortgage Insurance?

What is PMI?

Private mortgage insurance (PMI) is required for home buyers if they are putting less than 20% down to purchase their house. This is required so lenders are not at fault if a borrower fails to make payments and a house falls into foreclosure. To ensure they don’t lose money, banks determined 80% of the home value can be recovered through foreclosure and to make up for the other 20%, banks require buyers to pay an insurance policy (the PMI). Think of PMI as insurance for the lender and not the buyer.

How it works

If a homebuyer puts down 20% on their home loan, they will not be required to pay private mortgage insurance. If they don’t put 20% down then they are required to pay PMI. PMI is a monthly insurance payment that can be added to your monthly mortgage payment. The only way to remove this payment is once you have 20% equity in your home, you can refinance and adjust your loan terms. Talk to your lender to answer any questions you have about refinancing.

How much it costs

Mortgage insurance costs vary depending on the loan program but are generally .5- 1.5% of the loan amount per year. For example, if you have a $250,000 loan, your mortgage insurance would cost around $1,250-$3,750 annually or $100-$315 monthly.


If you have enough to put 20% down on your home, it may be worth it to avoid paying PMI. If you don’t have enough to put 20% down, you don’t have to be stuck paying PMI forever. Talk to your lender and discuss when you’ll have enough equity in your home to refinance and remove your PMI from your mortgage.

Justice Roberts Loan Officer

Justice Roberts

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