Glossary
PMI (Private Mortgage Insurance)
Insurance protecting the lender when a conventional mortgage down payment is below 20%, paid by the borrower until enough equity builds.
PMI — private mortgage insurance — is a policy you pay for that protects your lender, not you. Conventional mortgages with less than 20% down carry enough default risk that lenders require insurance against loss; the premium, typically 0.3%–1.5% of the loan amount per year depending on your credit and down payment, is added to your monthly cost.
On a $300,000 loan, PMI commonly runs $75–$375 a month — money that builds no equity and reduces no balance. That’s the case against it. The case for tolerating it: waiting years to save 20% down while home prices and rents rise can cost more than the PMI ever would. It’s a price for entering the market early, and sometimes a fair one.
The exit rules matter most. By federal law (the Homeowners Protection Act), PMI must terminate automatically when your balance amortizes to 78% of the original home value, and you can request cancellation at 80% — including through appreciation or extra payments, subject to lender rules. Track your loan-to-value ratio and don’t pay a month longer than required.
FHA loans have their own version (MIP) with stricter, often permanent rules — a key difference when comparing loan types.
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