What is Private Mortgage Insurance?

Private mortgage insurance is written by a private company protecting a mortgage lender against loss in the event the borrower defaults. The borrower pays the premiums which typically cost about ½ percent of the loan per year. You must get private mortgage insurance if your down payment is less than 20 percent of the sale price.

For example, let’s say you buy a house worth $100,000. You can only make a down payment of $10,000 so you must get the private mortgage insurance. It will probably cost about ½ percent of the $90,000 mortgage or $450 per year, in monthly installments of $37.50, not tax deductible. You keep paying the premiums until your home equity is 20 percent. In this case $20,000. At that time, the private mortgage insurance is no longer necessary.