What is PMI?
(back to top) Private Mortgage Insurance (PMI) is usually mandatory for loans when the ratio of the amount of the loan to the value of the subject property is greater than 80 percent – that is, 80.01 percent% or more of the property is being paid for by the loan. Loan-to-value ratio (LTV) knows this as the loan. Basically, the lower your Loan-to-value ratio, the higher your equity in the property. You can think of equity as the part of your property you actually own. If you sold your property (for its appraised value), equity is the amount of cash you’d have left after you repay your loan balance in full. Common wisdom holds that the more equity a borrower has in a property, the lower the risk of defaulting on the loan. Thus, Private Mortgage Insurance (PMI) must be paid for lower equity (high LTV) loans to safeguard the lender from possible loan defaults.
Private mortgage insurance (PMI) is purchased by a buyer when the down payment is less than 20% of the purchase price or the loan amount is more than 80% loan-to-value. Mortgage insurance is designed to protect the lender against default. Homeowners will continue to pay mortgage insurance even after they refinance their home, as long as the loan-to-value remains above 80%.
Private Mortgage Insurance (PMI) is usually mandatory for loans when the ratio of the amount of the loan to the value of the subject property is greater than 80% – that is, 80.01% or more of the property is being paid for by the loan. Loan-to-Value ratio (LTV) knows this as the Loan. Basically, the lower your Loan-to-Value ratio, the higher your equity in the property. You can think of equity as the part of your property you actually own. If you sold your property (for its appraised value), equity is the amount of cash you’d have left after you repay your loan balance in full. Common wisdom holds that the more equity a borrower has in a property, the lower the risk of them defaulting on the loan. Thus, Private Mortgage Insurance (or PMI) must be paid for lower equity (high LTV) loans to safeguard the lender from possible loan defaults.
