Private mortgage insurance (PMI) is required by lenders when a homebuyer makes a down payment on their home of less than 20%. It is a type of insurance policy that protects the lender from losing any money if your home ends up in foreclosure. PMI is also required if you decide to refinance your home with less than 20% equity.
Borrower-paid PMI (BPMI) is when you have monthly PMI payments, you are required to continue paying PMI until your loan balance reaches 78% of the original value of your home. If you would like to cancel your PMI, you must obtain approval from your lender in doing so and your home must reach 20% of the purchase price or appraised value. It is also required to have adequate equity as well as a good payment history.
Single-premium PMI means that the premium is paid upfront in a single lump sum. This does not require any monthly payments and can be paid at full at closing or financed into the loan.
Lender-paid PMI (LPMI) is a permanent part of your loan. The cost of the PMI is included into the mortgage interest rate and allows for lower monthly mortgage payments. However, with this type, you will end up paying more interest in the life of the loan.
Payments for PMI can be avoided entirely if you originally make a down payment of 20% of the purchase price of your home.