Private Mortgage Insurance

Past trends have shown the correlation between lack of home equity and default. The less capital that a buyer 
has invested in their property, the more likely that they are to default on a mortgage.
 
PMI is required by lenders when homebuyers borrow more than 80 percent of a property's value. In other
words, if the down payment is less than 20 percent, PMI is normally required. PMI is basically insurance
which serves to protect the lender in the event that the borrower cannot repay. The inclusion of PMI enables 
those with less capital to gain mortgage approval. It does not apply to government subsidized loans.

Normally the lender arranges the PMI coverage options, rather than an external insurance company. Monthly 
payments are based on a number of factors, including borrower credit history, down payment, mortgage
type, and degree of coverage. Payments for a median priced home usually fall within $50-$100 per
month.

PMI is not required after 20 percent of the mortgage principal is paid, however, in past years, the cancellation
of PMI coverage was the responsibility of the borrower. Now the PMI termination is supposed to be monitored 
by the lender and automatically performed when 22 percent of the principal is paid.
  
The Homeowners Protection Act of 1998 requires lenders to disclose certain information regarding PMI,
which includes guidelines for PMI cancellation requests by the borrower as well as automatic 
discontinuation of PMI.