Private Mortgage Insurance
Private Mortgage Insurance (PMI) is a way for lenders to mitigate higher risk mortgages, by asking that borrowers who put down less than 20% insure themselves against defaulting on their mortgage payments.
This allows many more borrowers to enter the housing market, in that they don’t have to put as much money down on the property, although it makes the house a much more costly investment.
The lender must drop the insurance once the lender or the property brings the mortgage balance to less than 80%, essentially dropping out of the higher risk range and negating the need for the insurance.
The cost of the Private Mortgage Insurance is around $55 per $100,000 of property value, and is the figure we use in the Mortgage Calculator.