What is private mortgage insurance (PMI)?

Private Mortgage Insurance, commonly referred to as PMI, is a type of insurance that lenders require when a borrower takes out a conventional loan and makes a down payment of less than twenty percent of the home’s purchase price. It serves as protection for the lender in case the borrower defaults on the loan. The rationale behind PMI is that a smaller down payment may represent a higher risk for the lender, as there is less equity in the property. PMI is typically added to the monthly mortgage payment, but it can also be paid as a one-time upfront premium or a combination of both. The cost of PMI can vary depending on several factors, including the size of the down payment and the borrower's credit score. Once the borrower has built sufficient equity in the home, usually reaching twenty percent, they may be able to request cancellation of the PMI. This helps lower the overall monthly payment. For more detailed information about PMI, it may be beneficial to visit the relevant section on Chateau Mortgage of Louisiana, Inc.'s website.