Private Mortgage Insurance is just what it sounds like – insurance. It’s required on home loans where the buyer puts less than 20% cash down. Statistically, buyers with less than 20% cash down payment are more likely to default on their home loans than those who have ready cash. Issued by private companies like MGCI Investment Corp and PMI Group, these policies paid off the mortgage lender if the buyer defaulted.
PMI fell out of favor in the boom-boom years of the early 2000’s (see entry for 80/20 Loans). But with the credit crunch roiling the markets since early 2007, it’s back in a big way. PMI will add $50 or $100 (or more) to your monthly mortgage payment. But for most buyers, it’s cheaper to pay a little every month than scrape for years (decades?) to save 20% of the purchase price of their new home.
Related Posts - 80/20 and 80/15/5 Loans, FAQ files, and Buyer Neighborhood Information