What is private mortgage insurance (PMI), and when is it required?

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1 Answer 8
Miller Smith

Answered 5 hours ago

Private Mortgage Insurance (PMI) is a type of insurance that protects the lender in case the borrower defaults on a conventional mortgage loan. It is typically required when the borrower makes a down payment of less than 20 percent of the home's purchase price. Since loans with smaller down payments are considered riskier, PMI provides a financial safeguard for lenders.

PMI does not benefit the borrower directly but allows them to qualify for a mortgage with a lower initial down payment. The cost of PMI is usually added to the monthly mortgage payment, though some lenders may offer options to pay it upfront or finance it into the loan.

PMI is automatically canceled when the loan-to-value ratio (LTV) reaches 78 percent, provided the borrower is current on payments. Borrowers can also request removal once the LTV hits 80 percent, based on current home value and payment history.

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