PMI (Private Mortgage Insurance)

Private Mortgage Insurance (PMI) is a type of insurance that lenders require when a borrower makes a down payment of less than 20% on a conventional home loan. PMI protects the lender, not the borrower, if the borrower defaults on the loan. It allows borrowers with smaller down payments to qualify for a mortgage, but it adds an extra monthly cost until enough equity is built in the home—usually when the loan balance drops below 80% of the home's value. Once sufficient equity is reached, PMI can often be canceled.