Mortgage Glossary
Private Mortgage Insurance
Insurance that protects the lender (not you) when your down payment is less than 20%. It's added to your monthly payment until you reach enough equity.
What It Means
Private Mortgage Insurance (PMI) is required on most conventional loans when your down payment is less than 20% of the purchase price. It protects the lender if you default.
PMI typically costs 0.5%–1.5% of the loan amount annually, added to your monthly payment. For example, on a $300,000 loan, PMI might add $125–$375/month.
The good news: PMI isn't permanent. Once you reach 20% equity, you can request removal. At 22% equity, lenders are required by law to automatically cancel it.
FHA loans have their own version called MIP (Mortgage Insurance Premium), which may last the entire loan term.
Real-World Example
"You put 5% down on a $350,000 home. Your lender adds $175/month in PMI. Once your balance drops to $280,000 (80% LTV), you can request to have it removed."
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Definitions are for educational purposes only and do not constitute financial or legal advice.