PMI, as it's colloquially known, allows borrowers to buy without 20 percent down by insuring lenders against the possibility such customers will default. Consumers pay the bill in monthly premium installments or all at once by financing the amount into their loans. If someone defaults, the PMI company steps in and compensates the lender. While borrowers generally could get rid of the coverage once they paid their mortgages down to 20 percent equity, that wasn't always the case since cancellation policies varied from lender to lender. That changed, in theory, with the recent passage of federal legislation aimed at simplifying the process.
Borrowers can now eliminate the extra monthly burden relatively quickly.
The healthy price appreciation many owners are experiencing today helps speed the process, too. Plenty, according to some financial experts. It's easy to get in over your head Because many home loan hurdles have been removed, inexperienced buyers can easily get in over their heads by borrowing too much or borrowing without a cushion against financial hardship. Even a slight economic downturn could push many too far, especially those who have no equity in their homes. Such consumers would likely end up owing more on their mortgages than their houses would be worth.