Mortgage Insurance
Private Mortgage insurance, also known as PMI, is a financial guaranty that insures lenders against loss if a borrower defaults on a mortgage. PMI makes it easier to obtain a loan more quickly and with less money down by limiting the financial risk of the lender. The borrower typically pays for this coverage. For example, without the guarantee of mortgage insurance, a lender may require a borrower to make a down payment of 20 percent, whereas that may be reduced to 10 or even 5 percent if the borrower agrees to purchase mortgage insurance that covers the lender.
If your loan requires mortgage insurance coverage, an initial premium will be collected at closing, and then you may have a monthly amount included in your monthly mortgage payment to your lender, who in turn remits payment to the mortgage insurer. Some lenders may also offer the option of annual premiums, or a single premium payment financed as part of the mortgage loan amount.