Lender-Paid Private Mortgage Insurance

DEFINITION of 'Lender-Paid Private Mortgage Insurance'

Private mortgage insurance that a mortgage lender pays on behalf of a borrower. Mortgage lenders generally require private mortgage insurance if a mortgage has a loan to value (LTV) ratio of more than 80%. When a lender pays the private mortgage insurance on behalf of the borrower, they do so in exchange for charging the borrower a higher interest rate. In other words, the borrower still pays for the private mortgage insurance, but does so in the form of a higher interest rate.

BREAKING DOWN 'Lender-Paid Private Mortgage Insurance'

The economics of the choice between paying private mortgage insurance, choosing lender paid private mortgage insurance, or using a second mortgage to avoid private mortgage insurance altogether is a function of how long borrowers estimates they will remain in a home or how long before they might refinance their mortgages and how quickly they estimate their home will appreciate.

To learn more about lender-paid private mortgage insurance, check out Why do I need to pay private mortgage insurance (PMI)?

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RELATED FAQS
  1. How can I avoid paying private mortgage insurance (PMI)?

    Private mortgage insurance (PMI) is an insurance policy that protects lenders from the risk of default and foreclosure, and ... Read Answer >>
  2. Why does the loan-to-value ratio matter?

    Learn how the loan-to-value (LTV) ratio is calculated, and why this metric is important to lenders when evaluating a home ... Read Answer >>
  3. Why would a homebuyer need to take out PMI (private mortgage insurance)?

    Learn why some home buyers are required to take out private mortgage insurance (PMI), and how it affects the total monthly ... Read Answer >>
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