If a buyer puts down less than 20 percent of the selling price on the mortgage, lenders may require the buyer to buy private mortgage insurance (PMI). This provides insurance to the lender in case the buyer is not able to repay the loan. If PMI is required, most buyers prefer to pay it monthly, together with their mortgage payment. Your basic monthly mortage payment can be determined with our simple mortgage calculator.
The annual cost of PMI can vary but is usually around 1 percent of the total loan value, depending on the loan terms and loan type. Credit score is typically the biggest factor in determining cost.
Once the buyer has 20 percent equity in the home, PMI is usually no longer required and can often be canceled. Please note there are some types of loans where PMI may be waived or avoided from the very beginning.