Final answer:
PMI proration is the division of Private Mortgage Insurance payments over the course of a year, typically included in monthly mortgage payments, especially when a homeowner puts down less than 20% on a home purchase.
Step-by-step explanation:
PMI proration refers to the division of Private Mortgage Insurance (PMI) payments into equal amounts over the course of a year. When a homeowner purchases or refinances a home, PMI is often required if they put down less than 20% of the home's value. PMI protects the lender in case the homeowner defaults on the loan. The proration of PMI allows for the insurance cost to be spread across monthly mortgage payments.
Calculating PMI proration typically involves determining the annual PMI cost, dividing that number by 12 to find the monthly cost, and then adjusting the first and/or last payment if the PMI starts or ends mid-month. Lenders may also prorate PMI based on the number of days in the month for the first payment. This ensures that homeowners are only charged for the PMI coverage they use.