An insurance contract that protects the lender against loss if a borrower can not repay a loan
If your down payment (or equity) is less than 20%, a lender will require you to buy MI. This is a lender’s safety net in case you default on the loan and the lender forecloses on your property. The lender will use the money collected from MI to offset any losses.
How much you need to pay each month in insurance depends on the loan amount, the type of loan and the downpayment. Typically, it costs between 0.15%, to 2.5% of the loan amount. You might also have to pay one or two months worth of payments when you close on your home.
The good news is that you may not have to pay MI forever – some lenders let you end the policy when, based on an appraisal, you show a lender that you have at least 20% equity in your home. MI is also called Private mortgage insurance (PMI).
See: Insurance, Foreclosure, Appraisal/Appraiser, Down payment
Mortgage definitions and Real Estate Terms, Consolidating loans, refinancing mortgages and reverse mortgage process available to anyone. This consumer information site contains several tools and guides to aid in purchasing or refinancing a home or commercial property.
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Monday, June 12, 2006
