Private mortgage insurance, often called ‘PMI’, is a type of mortgage insurance you might be required to pay for if you have a conventional mortgage and are unable to make the full 20% down. Like other kinds of mortgage insurance, PMI protects the lender—not you—if you stop making payments on your loan!
Banks like PMI because it drastically reduces their potential foreclosure costs and potential losses and makes them more willing to accept less than the required 20% on the down payment! But always remember, as mentioned before, that you will still need to keep up with your mortgage payment with this kind of insurance—it will protect the bank’s investment and not yours!
There is a silver lining to this type of insurance–instead of having to spend a whole lot more money than you have to on a 20% down payment, or having to wait longer to get into a house due to the long grind of building a savings account, you can get into the house you want with Private Mortgage Insurance!