What is private mortgage insurance?

Private mortgage insurance is insurance that is usually required by the lender if the borrower is not able to put 20% down on a mortgage up front. Basically, this type of insurance protects the lender from losing money in the event of a default. If the property goes into foreclosure and the bank sells it at auction, it may not bring enough money to pay off the loan, which is why private mortgage insurance is usually required on behalf of the lender.

Typically, it costs about $55 a month to insure a $100,000 loan. Sometimes a bank will allow the borrower to discontinue payments once the loan to value (LTV) ratio reaches 80%, though usually the buyer pays until the LTV reaches 78%. Read more