What is private mortgage insurance?

Generally if you are making the down payment lower than 20 percent of the appraisal value or the sale price then you have to take PMI or private mortgage insurance. PMI will help you to take the mortgage loan with low down payment. And the reason of getting the loan is, you are protecting the lender by taking PMI. If you become defaulter on any loan amount then the lender will make it up from your insured amount.

PMI charges depend on the amount of the down payment. But according to the Mortgage Bankers Association of America it amount to .5 percent of the loan amount. Mortgage insurance premium is now tax deductible and it has been extended to 2010.

Example:
Lets say you have taken a loan of $200000 and you have made the down payment of rs $20000 which is 10% of the loan amount. So the annual mortgage interest will be .5% of the $1, 80,000 which is $900 and your monthly amount will be $75.