Private Mortgage Insurance 

Private Mortgage Insurance

Most people view private mortgage insurance (PMI) as a complete waste of money. However, it does allow some homeowners to move into their homes quicker because they don't need to save for such a large down payment. Lenders require private mortgage insurance on most conventional mortgages because experience reveals a strong correlation between borrower equity and default. The less money a borrower has invested in a home, the greater the probability of default. Thus, private mortgage insurance is a financial guaranty that protects lenders against loss in the event that a borrower defaults. Without that financial guaranty, lenders will typically require a down payment of at least 20 percent.

Some people confuse private mortgage insurance with mortgage life insurance. Private mortgage insurance puts people in homes; mortgage life insurance pays all or a portion of your mortgage in the event of your death.