Private Mortgage insurance (PMI) is an additional insurance required by most lenders if your first mortgage loan exceeds 80% of the lower of the purchase price or appraised value of your home. The insurance fee attempts to equalize the lender’s risk with a similar loan having 20% equity.
For instance, years ago when my wife and I purchased our home, we didn’t have 20% to put down on the house. We called ourselves “upwardly mobile” but really we were just poor. We bought a property that included rental units that would help us make the mortgage payment, but we had to pay the dreaded PMI.
As luck would have it, the house was in a hot neighborhood and doubled in value in under a year. We suddenly had equity in the house and were able to refinance and get rid of the dreaded PMI.
Yes, the dreaded PMI. The thing is…
Calling it “the dreaded PMI” is not really fair. We never would have been able to purchase the house we have without the private mortgage insurance in the first place.