What is Private Mortgage Insurance?
Private Mortgage Insurance (PMI) Helps You Get the Loan
PMI is a supplemental insurance policy you may be required to obtain in order to get a mortgage loan. PMI is provided by private (non-government) companies and is usually required when your loan-to-value ratio — the amount of your mortgage loan divided by the value of your home — is greater than 80 percent. PMI allows you to make a lower down payment and still qualify for a mortgage loan.
How is PMI Calculated?
Your PMI premium is fixed based on plan type (loan-to-value ratio, loan type, loan term, etc.) and is not related to your particular credit history or other individual characteristics. PMI typically amounts to about one-half of one percent of your mortgage amount annually, according to the Mortgage Bankers Association, and the premium payment is usually rolled into your monthly mortgage payment. For example, on a $200,000.00 mortgage, you may be paying $1,000.00 per year for PMI.