Buying a House: What Does PMI Mean?

By The Sum and Haley Velasco

October 5, 2022 2:47 PM

Private Mortgage Insurance is a type of insurance that conventional mortgage lenders require when homebuyers put down less than 20% of the purchase price.

People throughout the country are struggling to weigh the pros and cons of renting versus buying.

Renting offers greater flexibility and fewer strings attached long-term, but dealing with landlords and leases can be stressful.

Buying enables people to put down roots and not deal with a landlord’s rules. However, home ownership always comes with hidden costs and requires ongoing maintenance. One of those being Private Mortgage Insurance, which is a type of insurance that conventional mortgage lenders require when homebuyers put down less than 20% of the purchase price.

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Why PMI?

PMI protects the lender in the event that the homeowner defaults on the loan, but doesn’t protect the homeowner from foreclosure.

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How much does it cost?

The average range for PMI premium rates is 0.58 percent to 1.86 percent of the original amount of your loan, according to the Urban Institute. Freddie Mac estimates most borrowers will pay $30 to $70 per month in PMI premiums for every $100,000 borrowed.

How do you pay for PMI?

There are three traditional schedules for payment:

Monthly: You pay your PMI premiums monthly with your mortgage payment. This boosts the size of the monthly bill, but allows you to spread out the premiums over the course of the year. This is the most common type.
Upfront: Another option is an upfront PMI payment, meaning you pay the full premium amount for the year all at once.
Hybrid: You can pay some upfront and some each month. This can be useful if you have extra cash early in the year and want to limit your monthly costs.