Private Mortgage Insurance is an insurance policy that a mortgage holder buys on behalf of the lender, protecting the lender in the event of default on the loan. Most lenders require their borrowers to purchase PMI if the loan-to-value ratio is more than 80%. Generally speaking, annual premiums are equal to 0.5% of the value of the loan at the time it is borrowed. When the loan-to-value ratio falls below 78%, most lenders are required to inform homeowners that they may cancel their PMI insurance. Some borrowers avoid PMI by taking out a piggyback mortgage, that is, a second mortgage allowing a combined loan to value up to 100% financing when the first loan is 80% and the second 20% is the piggyback.
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