How Does Mortgage Insurance Work Private Mortgage Insurance (Pmi) – Home Buying Course Session 11

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Now that we may or may not have 20% down let’s touch on how Mortgage insurance works.

Click Here to Go Back to Session 10: Is It Better to Have a 20% Down Payment for a Home




What Does Mortgage Insurance Do for Me?

In easy words, nothing. You pay this for the lender to have protection if you default on the loan. So, in essence, you are paying insurance to indemnify (make whole) the mortgage lender if you were to default on the loan.

Can I Avoid Pmi?

Unless you put down 20%, then no. But Investopedia has an option called a “piggyback mortgage” where a home equity loan is obtained the same time as the original mortgage creating a 20% down payment and thus eliminating the need for PMI. Or, at times, there is Lender Private Mortgage Insurance where the PMI is added to the interest rate of the loan. Again, you will pay far more in interest over the full life of the loan.


Bottom line. You most likely will pay mortgage insurance if you put less than 20% down.



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||| Max


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As a certified credit counselor and syndicated writer at MaxMyMoney, Max has coached over 250 Millennials to help take the stress out of money. When Max is not coaching, you'll find him reading financial books, indoor cycling, or visiting local pawn shops looking for swiss-made watches.