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"What is private mortgage insurance?" Private mortgage insurance protects the lender from loss due to payment default by the borrower. It is used with conventional financing only. It may be paid in a lump sum at the time of settlement or in monthly installments as part of the mortgage payment. PMI is
typically required when the amount of your loan exceeds 80% of the subject property's value. This type of insurance should not be confused with mortgage life, credit life, or disability insurance which is designed to pay off a mortgage in the event of the borrower's disability or death. The mortgage insurance premium depends on the loan-to-value ratio. I t is 3-tiered: 80.01%-85.00%, 85.01% to 90.00% and 90.01% to 95.00% each step costing more. The mortgage insurance also depends on the loan amount and the type of loan. Adjustable rate loans have higher premiums than fixed rate loans. At the present time you can choose between monthly and annual premiums. The PMI is given by a different party than the lender. Your lender will send a copy of your loan application package to the MI company for their approval. Among the loan documents you will sign at closing is a PMI agreement. Your lender will "impound" the PMI payment along with your principle and interest. It is usual that when your loan-to-value equals or exceeds 90% your property tax is also impounded. PMI policies usually have "escape" clauses describing under what conditions you can stop paying PMI. It is necessary that you read the PMI policy to determine this. The loan professional that has made this information available to you specializes in assisting those individuals with obtaining a home loan whether for purchase or refinance. Your loan professional in most cases can advice you on the best approach and help you with your specific loan requirements.
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