PMI stands for Private Mortgage Insurance, and it is required on mortgages with a loan-to-value ratio greater than 80%. For example, if your home was worth $100k at the time of closing, and you owe more than $80k on the loan, you are required to have PMI.
I got my annual PMI disclosure tonight, and it says that if I’ve had my loan for at least two years, and have a good payment history for at least two years, I am eligible to cancel my PMI.
It’s not a lot, mind you. But I’d love to save the ~$70/mo it costs. That’s a fifth of vodka and a bag of CBD gummies, every month.
I get the need for PMI but it’s such bullshit that the borrower pays it when it’s for the lender’s benefit.
I am not defending this, just explaining their perspective, but the institution is basically taking a risk of loss on any loan over 80%. The PMI helps lower the impact on that risk, and is paid by the borrower because they are the risk themselves.
If the bank has to foreclose within 6 months because someone hasn’t made their payments, they’re not going to get the same value the home was sold for when they put the home to auction. The lower the LTV, the higher the chance is that the bank can at least break even on the total loan given.