PMI stands for Private Mortgage Insurance. It is something required by your mortgage company if your down payment is less than 20% of the purchase price. It’s purpose is to cover the balance of the 20% if you stopped making payments and went into foreclosure. It’s not going to pay off or mortgage if anything happens to you, it only protects the bank’s investment.
There are ways to avoid paying for PMI, such as if you are a veteran, VA loans do not require mortgage insurance. Other ways include going with a high interest rate, getting a combination loan, and there are also some banks that offer special loans to teachers and doctors that don’t require PMI.
One thing to know about PMI is that you don’t have to pay it for the entire life of the loan. It is only needed to cover the amount a 20% down payment. When your equity has reached that 20% you can contact your mortgage company and ask about ending your PMI. The 20% equity is based on your payments so far and the appraised value of your home, so they will usually want a professional appraisal done, which can run anywhere from $300-$500.
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