Personal Mortgage Insurance

Personal Mortgage Insurance offers protection only for the lender. This insurance pays off the lender in the event the borrower defaults on the mortgage. Lenders generally require PMI whenever the down payment on a purchase is less that 20 percent of the purchase price. PMI premiums can be expensive. Usually, advance payment of the first year's premium is due, in one lump sum, upon purchase. A monthly premium is then added to the mortgage payment.

PMI can be terminated when the equity in the property reaches 20 percent due to payments of mortgage principal, appreciation in the value of the property, or both. Lenders require an appraisal to establish that the 20 percent threshold has been reached. Note that hazard insurance, title insurance and PMI represent examples of the principle of relying on another person's insurance. The owner of the property will be compelled by the lender to pay for the insurance, even though the lender will be a beneficiary of the insurance.