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Private Mortgage Insurance (PMI)
Insurance that protects lenders in case of mortgage default—typically required if the down payment is less than 20% of the home's purchase price.
More Details
Private Mortgage Insurance (PMI) is insurance coverage that lenders typically require borrowers to pay for if they have a conventional loan and make a down payment of less than 20% of the home's purchase price. PMI protects the lender—not the borrower—in the event of loan payment defaults. It is arranged by the lender and provided by private insurance companies.
Example
Imagine you are purchasing a home for $300,000 and are making a down payment of $30,000, which is 10% of the purchase price. Since your down payment is less than 20%, your lender will likely require you to pay for PMI. The PMI premium will be added to your monthly mortgage payment (you may also have the option to pay upfront) until the equity in your home reaches 20% or more. This ensures that the lender’s investment is protected in case you are unable to make your mortgage payments.
Related Terms
Refinance
The process of paying off an existing loan with a new loan, typically in order to obtain a lower interest rate or to change the terms of the loan.
Mortgage
A loan used to finance the purchase of a home, with the property serving as collateral for the loan.
Jumbo Loans
A type of mortgage that exceeds the conforming loan limits set as eligible for purchase by government-sponsored enterprises.