Definition of Private Mortgage Insurance (PMI)

Private Mortgage Insurance, or PMI, is a type of insurance that lenders require from homebuyers who make a down payment of less than 20% of the home’s purchase price. PMI protects the lender if the borrower stops making payments on the loan.

While it helps borrowers purchase homes with a smaller down payment, it also adds to the monthly mortgage payment. PMI is typically required until the homeowner has built up enough equity in the property, usually reaching 20% of the home’s value, at which point the insurance can be canceled.