An insurance policy required on certain loan products.
An insurance policy required on certain loan products. Mortgage insurance protects the lender in case the borrower defaults on their mortgage loan.
Monthly mortgage insurance is required throughout the life of the loan on all FHA (government) loans. Private Mortgage Insurance (PMI) is usually required on conventional loans that exceed an 80% loan-to-value (LTV) ratio at the time of purchase.
On conventional loans, mortgage insurance will not normally last the life of the loan — it can be refinanced off if the homeowner demonstrates a minimum of 20% equity in their property, or it will automatically fall off after the homeowner reaches a 78% LTV through normal amortization. Mortgage insurance is normally paid monthly, although it can be paid upfront in a ‘lump sum’ payment (known as single-premium mortgage insurance) or some combination of the two.