Private Mortgage Insurance
Insurance that protects a mortgage lender, not the borrower, when a conventional loan is made with less than a 20 percent down payment.
Overview
PMI lets buyers purchase with as little as 3 to 5 percent down on conventional loans, with the borrower paying the premium monthly, upfront, or through a higher interest rate. Pricing depends on credit score, loan-to-value ratio, and loan type. The Homeowners Protection Act of 1998 lets borrowers request cancellation once the balance reaches 80 percent of the original home value and requires automatic termination at 78 percent if payments are current. Government backed loans work differently: FHA loans charge their own mortgage insurance premium, which for many borrowers lasts for the life of the loan unless refinanced, and VA loans use a one time funding fee instead.
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