Why Private Mortgage Insurance Can Be a Good Thing

PMI is a form of insurance, paid for by the borrower, which protects the lender against financial loss in the event of foreclosure.

The words “private mortgage insurance (PMI)” often carry a negative connotation. After all, it’s an insurance premium that has no direct benefit to the borrower, and it’s often seen as a type of “penalty” for putting down less than 20 percemt on a mortgage. But, it can actually be advantageous to buyers. Here are a few “pros” that might make you change your mind about PMI.

What is PMI?

When you purchase a home using a conventional loan and make a down payment of less than 20 percent, PMI may become a part of your mortgage payment. PMI is a form of insurance, paid for by the borrower, which protects the lender against financial loss in the event of foreclosure.

The monthly premium is calculated using a risk-based pricing model just like any other type of insurance, and the fees vary, depending on your credit score, down payment amount, and loan amount.


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