Private Mortgage Insurance
What is Mortgage Insurance?
What is mortgage insurance? Mortgage insurance is an insurance product that compensates investors or lenders for monetary losses resulting from the non-payment of a mortgagor’s mortgage loan. Mortgage insurance is either private or public depending on the insurer. The coverage is sometimes referred to as a mortgage indemnity bond, especially in the UK.
Private Mortgage Insurance (PMI) provides protection for lenders against unanticipated losses due to borrowers who become unable to meet their monthly obligations. PMI is typically offered only to borrowers who own property and use it as collateral. In most private mortgage insurance plans, the premium is determined based on the credit risk of the borrower and the current interest rates. Private mortgage insurance policies pay all the costs associated with a potential loss to the lender if the borrower becomes delinquent on the loan. In some cases, a borrower who has met all the eligibility requirements can be exempted from paying premiums, depending on the lender’s policy.
Private Mortgage Insurance is usually sold by an insurance company that specializes in these types of policies. Private Mortgage Insurance companies set the rates, which are often variable, and will either include or exclude certain risks. A private mortgage insurance plan will pay a specified amount to the lender if the borrower defaults on the loan, or reimburses the lender for the cost of any missed payments that occur during the policy period. Private mortgage insurance plans are normally less expensive than a standard amortization schedule and are sometimes used instead of securing a traditional loan, especially for borrowers who do not qualify for federal financial aid. Private Mortgage Insurance helps to protect the lender by providing a source of funds to cushion a lender’s potential loss if the borrower’s income or credit rating declines and they are unable to refinance the loan.