Private Mortgage Insurance (PMI)
A Private Mortgage Insurance issued to protect the lender in case the borrower defaults in the payment responsibilities leading to the home going into foreclosure. When applying for mortgage loans, a borrower may be required to drop a down payment of 20% of the total price of the property. If the borrower cannot provide such, the loan becomes risky and the lender may require the borrower to take out a PMI as a precondition to applying for the mortgage. PMI is usually paid monthly as part of the overall mortgage payment to the lender. Sometime it may be paid as a one-time upfront payment. The lender is expected to terminate the PMI on the date the loan balance reaches 78% of the total value of the property i.e. when equity reaches 22%.