Private Mortgage Insurance

Private Mortgage Insurance (PMI) is a kind of insurance in which the lender is insured incase of default on the part of the buyer in a loan. The lender or the bank requires PMI incase the buyer has a down payment less than 20 % of the demanded price of the home. Private mortgage insurance has got both advantages and disadvantages. Private mortgage insurance does not provide additional homeowner's insurance coverage. But it provides the bank insurance on the event of not fulfilling your obligations by not paying your obligations. The use of PMI has helped to bring more Americans to the into homes.

But the problem with PMI is that increases your monthly payment and is not tax deductible like the interest on a traditional mortgage. The advantage is it allows a person to buy a house without saving up the required 20% . PMI has also made 3-5% down programs. Generally, while purchasing a house, a traditional home owner's insurance purchase is also required.

More Terms Explained