What is private mortgage insurance
and when does it come off?
PMI is insurance a conventional lender requires when the down payment is under 20%. It protects the lender rather than the borrower, and it can usually be cancelled once equity reaches 20% of the original value.
- Private mortgage insurance is required by conventional lenders when a borrower's down payment is under 20%, which is the same as a loan-to-value above 80%
- It protects the lender in case of default, not the borrower, even though the borrower is the one paying the premium
- It can typically be cancelled once equity reaches 20% of the original value, so it is a stage of the loan rather than a permanent feature of it
Term. Written by The JK Realty Group.
Private mortgage insurance is insurance a conventional lender requires when a borrower puts down less than 20%, which is another way of saying the loan-to-value is above 80%. The part that surprises people is who it covers: PMI protects the lender if the loan defaults, not the borrower, even though the borrower pays the premium. Buyers in South Jersey meet the term while deciding whether to put more money down or to buy sooner with less.
Say a buyer is looking at a house around $400,000 and has 10% to put down. Because that is under the 20% line, the loan carries PMI, and the premium rides along with the monthly payment. As the balance comes down and equity builds toward 20% of the original value, that premium can typically be cancelled, and the payment drops without anything else about the loan changing. Those numbers are an illustration, not an offer or a quote.
Two things worth separating out. This is the conventional-loan version: FHA loans carry their own mortgage insurance on different terms, and the two are not interchangeable. And what PMI actually costs is not one number, because it moves with credit, loan size and program, so it is worth seeing the figure on your own estimate rather than a rule of thumb.
What to ask, and who answers it: your lender is the one who prices PMI on your loan, confirms when it can come off and what that request involves. Your agent can help you weigh a larger down payment against getting into the house sooner, which is the real decision underneath the question.
Our take
PMI is what lets a buyer in with less than 20% down, and for most borrowers it comes off later rather than lasting the life of the loan. If you are weighing a bigger down payment against buying sooner, ask your lender what the premium costs each month first.
Have a question about the process? Let's talk.
The figures in the example are illustrative, not an offer or a quote. What PMI costs on your loan, and when it can be cancelled, are questions for your lender. General information, not advice about any specific property. The JK Realty Group, brokered with OMNI Real Estate Professionals. Equal Housing Opportunity. See our Terms of Use for how we source and credit these posts.