Question

What is PMI and what is its purpose? If you have a 10% down payment and finance the remaining 90% with a mortgage, how much will the PMI cover?

Answer 1

PMI ( Private Mortgage Insurance) is an insurance policy on the balance of the loan taken for home. This is mainly required for those mortgages where the down payment is less than 20 % of the loan value on a home purchase. This ensures the lender that the loan will be still repaid even if the same has not been paid by the borrower. PMI can be seen as an added cost for some or a boon for those who dont have much to pay for down payment.

If we have 10 % down payment and rest 90 % is financed, the PMI can cover the 90% of the loan but it depends on various factors decided between the insurer and the insurance taker. The costs will be high for the whole amount of 90% of the loan.