What is Private Mortgage Insurance - PMI 

PMI stands for private mortgage insurance.  Private mortgage insurance is required on most conventional mortgages when a borrower has less than 20% down payment on a purchase, or less than 20% equity in their home when they refinance. This type of insurance is included with your mortgage payment and is an added insurance to protect the lender should a homeowner default on their mortgage obligation.

The Home Owner’s Protection Act (HPA) of 1998 states that a lender must cancel your PMI payments once your loan to value equals 78%.  You can also call your current lender if you think you have reached 80% loan to value in your property and would like them to remove the PMI. They are not required to by law, however some lenders will consider removing the PMI if the home’s value can be substantiated with an appraisal.

There is also something called LPMI, or lender paid mortgage insurance. This type of insurance is not actually insurance at all. An LPMI loan program will remove the PMI when mortgage insurance would normally be required.  However, the interest rate will be higher than the loan with PMI. That’s how the LPMI program works – if you choose to take an LPMI program to avoid mortgage insurance, you will pay for it with an increased interest rate.  If an LPMI program is available to you, you should compare both mortgages to see which one has the lowest payment regardless of the interest rate.

If you want to compare PMI mortgages to LMPI options, you can find a mortgage broker that can answer your questions and find you the most competitive mortgage quote available.

Go to the BeatMyBroker.com homepage to see how you can get the best mortgage rates and read about current mortgage news.