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Simple English definitions for legal terms
private mortgage insurance
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A quick definition of private mortgage insurance:
Private mortgage insurance, or PMI, is a type of insurance that protects the lender if the borrower fails to repay the loan. It is usually required by the lender when the borrower has a conventional loan and makes a down payment of less than 20% of the purchase price of the house. Without PMI, the borrower would need to make a larger down payment. PMI allows borrowers to make a smaller down payment, but they will need to pay for the insurance.
A more thorough explanation:
Private mortgage insurance, also known as PMI, is a type of insurance that protects the lender in case the borrower defaults on their mortgage payments. PMI is usually required by the lender when the borrower has a conventional loan with a down payment of less than 20% of the purchase price of the house.
For example, if a borrower wants to buy a house for $200,000 and they only have $10,000 for a down payment, they would need to get a mortgage for $190,000. Since their down payment is less than 20% of the purchase price, the lender would require them to get PMI to protect their investment.
PMI can be paid in different ways, such as a monthly premium or a one-time upfront fee. The cost of PMI varies depending on the size of the down payment, the loan amount, and the borrower's credit score.
It's important to note that PMI only protects the lender, not the borrower. If the borrower defaults on their mortgage, the lender can file a claim with the PMI company to recover their losses. However, the borrower would still be responsible for any remaining debt.
Overall, PMI allows borrowers to buy a home with a smaller down payment, but it comes with an additional cost. It's important for borrowers to understand the terms and costs of PMI before agreeing to it.