Insurance required on conventional loans when the down payment is less than 20%, protecting the lender — not the borrower — if the loan defaults.
Full Definition
PMI is required on most conventional loans with a down payment below 20%. It protects the lender, not the borrower, against losses if the borrower defaults. PMI typically costs 0.5–1.5% of the loan amount annually, paid monthly as part of the mortgage payment. So on a $400,000 loan, PMI might add $200–$500/month. The good news: you can request cancellation once your LTV reaches 80% of the original purchase price. Under federal law (Homeowners Protection Act), the lender must automatically cancel PMI at 78% LTV based on the original payment schedule. Alternatives to PMI include larger down payments, piggyback loans, or lender-paid PMI (LPMI) — which builds PMI into the rate.
Related Terms
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