PMI (Private Mortgage Insurance)
Mandatory insurance for US & Canada mortgages with down payment less than 20% of purchase price.
Key Takeaways
- First, understand the key concepts and how things work
- Get the most up-to-date information directly from official channels
- Seek advice from professionals who specialize in your situation
Overview
Private Mortgage Insurance (PMI) is a type of insurance policy that protects lenders against loss if a borrower defaults on a mortgage loan. It is typically required when the down payment is less than 20% of the home's purchase price, as this represents a higher risk for the lender. PMI allows borrowers to purchase a home with a smaller down payment while protecting the lender's investment.
Key Characteristics
- Required when down payment is less than 20% of purchase price
- Protects lender against default risk
- Paid monthly as part of mortgage payment
- Can be cancelled once LTV reaches 78% through regular payments
- Cost typically ranges from 0.5% to 1.5% of loan amount annually
US vs Canada PMI Rules
In the United States, PMI is regulated by the Homeowners Protection Act of 1998, which requires automatic termination when the loan-to-value ratio reaches 78%. In Canada, mortgage default insurance is mandatory for down payments between 5% and 19.99%, provided by CMHC, Genworth, or Canada Guaranty.
Common Examples
- Home purchase with 5% down payment requiring PMI
- Canceling PMI after reaching 20% equity through payments
- Refinancing to remove PMI when LTV improves
- Canada CMHC insurance for low down payment mortgages
Related Glossary Terms
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