Private Mortgage Insurance is an insurance policy that a mortgage holder buys on behalf of a lender, protecting the lender in the event of default on the mortgage. Most lenders require their mortgage borrowers to purchase PMIs if the mortgage's loan-to-value ratio is more than 80%. Generally speaking, annual premium payments on PMIs are equal to 0.5% of the value of the mortgage at the time it is borrowed. When the loan-to-value ratio falls below 78%, most lenders are required to inform homeowners that they may cancel their PMI policies. Some borrowers avoid PMI by taking out a piggyback mortgage, that is, a second mortgage allowing one to borrow up to 100% of the home's value in which the loan-to-value ratio is approximately 80% in the first mortgage and 20% in the piggyback.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
Send us a message!