What Is Private Mortgage Insurance?

By: Jorge Lopez, January 6, 2016

Are you familiar with private mortgage insurance?  It’s one of the lesser known aspects of the whole mortgage process.  While it ultimately benefits a lender more than it does the borrower, it’s something you may want to be aware of.  With mortgage insurance, the lender is protected in the event that a borrower fails to pay back their loan and the borrower is unable to recover costs after the property has gone into foreclosure and has been sold.

You may be thinking, “What’s the point of obtaining mortgage insurance if it helps the lender?”  After all, you’ll still have to pay the premium even though the lender is the sole beneficiary.  Although it may seem largely pointless, it’s worth noting that with mortgage insurance a borrower is in a much better position to receive lower monthly payments. Plus, there are some cases where this insurance will be a requirement.

Keep in mind that private mortgage insurance is not the same thing as mortgage protection insurance.  While the names make them seem nearly identical, their intended purpose differs significantly.  With private mortgage insurance, a lender is being protected from potential nonpayment.  Mortgage protection insurance will ensure that the loan is paid should the borrower pass away.

If you have private mortgage insurance, you may be able to cancel it if you’ve reached a minimum of 20% loan equity.  A borrower is also required to cancel the insurance if the loan to value is at least 78%.

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