Private mortgage insurance

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Private mortgage insurance is also known as lenders mortgage insurance. When you are buying a house where you will have less than 20% equity, your lender will probably require that you pay an additional monthly fee to cover the cost of insurance in case you default on your mortgage. This insurance typically costs about $50 to $60 per $100,000 of the mortgage. So the private mortgage insurance (PMI) on a $150,000 home would be in the $75 to $90 per month range.

Once you get to the point where you own 20% of the equity of your home, PMI will probably not be required and you can get that monthly fee removed. This may not happen automatically, so you may need to ask your lender to get it removed. In some cases, an increase in value of your home will get you to the 20% equity mark and you may be able to get your lender to remove PMI once that occurs. The paperwork from your mortgage should lay out the specifics of when PMI is required and how to go about getting it canceled once it is no longer necessary.

Occasionally some mortgages will be offered as not requiring any mortgage insurance or PMI. Usually in this situation, the lender is paying for the mortgage insurance and funding it through a higher interest rate on the loan.

In some cases, the home buyer can avoid PMI by getting a second mortgage or piggy back loan in order to show 20% equity from the first mortgage standpoint.

In the US, PMI (mortgage insurance) is tax deductible as of 2007.