PMI
Also known as Private Mortgage Insurance
Insurance required on conventional loans with less than 20% down, protecting the lender if you default.
In plain English
PMI protects the lender, not you, if you default on a conventional loan with less than 20% down. It's added to your monthly payment and can be removed once your equity reaches 20% of the home's value.
PMI is one of the most misunderstood costs in home buying, knowing how it's calculated and how to remove it can save you real money over time.
Worked example
On a $300,000 loan at a 0.6% PMI rate, annual PMI costs $1,800, or about $150 added to your monthly payment, until your loan balance reaches 80% of the home's original value (or you request cancellation once you're there).
Ask your lender exactly which cancellation path applies to your loan: automatic termination at 78% of the original value under the Homeowners Protection Act, or borrower-requested cancellation at 80%, and what paperwork (like a new appraisal) they'd need to consider removing it earlier.
Many borrowers assume a rising home value automatically removes PMI. Under federal law, automatic and requested cancellation are based on the loan's original value, not today's value, getting PMI removed earlier because of appreciation is something some lenders and loan investors allow at their discretion, not a guaranteed right.
Where you'll run into it
Guides and tools on TheBuyingPath that cover pmi in context.
Related terms
Sources
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