Who Is Covered by Private Mortgage Insurance?

If you get a mortgage loan for more than 80 percent of your home's value, the mortgage lender will require private mortgage insurance (PMI). This insurance covers the lender in the event your mortgage loan goes into default and is foreclosed.

LTV

Lenders use the ratio of your mortgage loan amount to your home's value at the time your mortgage is made. This is called loan-to-value, or LTV. If you're buying a home for $100,000 and taking out a mortgage loan for $90,000, your LTV is 90 percent and would require PMI.

Who Pays

Although PMI protects the mortgage lender, premiums are paid by homeowners. The amount of the annual PMI premium is divided by 12 and added to your monthly mortgage payment.

Time Frame

Homeowners continue to pay PMI premiums until their LTV ratio moves below 80 percent of home value. Home value can increase, and you can ask your lender to cancel PMI if you can prove that your LTV is 80 percent or less.

Cancelling PMI

You can save money by asking your lender to cancel PMI when your LTV decreases to 80 percent or less of home value. Call your mortgage loan servicer for details and specific requirements; you may be required to pay for a current appraisal or other documentation of current home value.

Foreclosure Aftermath

If your lender forecloses your mortgage, it submits a claim to the PMI company for reimbursement of its losses. The PMI company pays the lender, and may seek reimbursement from you through a judgment or lien, depending on state laws.

References

• Private Mortgage Insurance Basics