Whenever a person needs to finance a house the mortgage is a way of financing with a significant portion of the house value as a down payment. For those who cannot pay a large down payment as high as 20%, the lenders feel reluctant to allow loans to such individuals because borrowers may not be able to pay mortgages. To secure against the risk of default by the borrowers, the lenders get private mortgage insurance to safeguard the default risk.
The amount of premium payable by the lender is normally 0.5% to 1.0% of the house value. If a house is worth $250,000, the amount of yearly installment will be $2,500 or $208.33 per month. The lender will shift this cost to the borrower in the shape of higher mortgage payments.
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