Private Mortgage Insurance (PMI) is a type of insurance that conventional mortgage lenders require borrowers to purchase when they make a down payment of less than 20% of the home’s purchase price. PMI protects the lender—not the borrower—against financial loss if the borrower defaults on the loan.
PMI is typically paid as a monthly premium added to the mortgage payment, though it can also be paid as a lump sum at closing or financed into the loan. The cost usually ranges from 0.3% to 1.5% of the original loan amount annually, depending on factors such as the loan-to-value ratio, credit score, and loan type.
Borrowers can request PMI removal once they reach 20% equity in their home through payments or appreciation, and lenders are required to automatically cancel it when the loan balance reaches 78% of the original home value. PMI differs from mortgage insurance on FHA loans, which has different rules and cannot always be removed without refinancing.
This insurance allows borrowers to purchase homes with smaller down payments, making homeownership more accessible, though it increases the monthly housing costs until sufficient equity is built.