Mortgage Broker Bill Rayman Answers: What is PMI and do I need it?

 Mortgage insurance allows consumers to purchase a home with a small down payment. Some buyers don't  20% of the value of the home they can otherwise afford. Most lenders require at least 20% down in order to insure themselves against a future foreclosure should the property lose value. They also know that borrowers who have at least a 20% equity in their homes default less often than borrowers with less equity.


Mortgage insurance takes on the lenders risk for the loan amount above 80% of the home value. Like all insurance PMI or MI has a cost that must be paid by the borrower.  The payment is included in your mortgage payment if your loan requires PMI or MI so that the lender knows that it is being paid on time.

You can cancel mortgage insurance without refinancing. In most cases, when you have established a 20% equity in your home and you haven't missed a payment in the past 12 months, you can get your mortgage insurance requirement removed by the lender.