PMI (Private Mortgage Insurance)
Quick Answer
Private Mortgage Insurance (PMI) is insurance that protects the lender if a borrower defaults, typically required when the down payment is less than 20%.
Definition
Private Mortgage Insurance (PMI) is insurance that protects the lender if a borrower defaults, typically required when the down payment is less than 20%.
Explanation
PMI allows homebuyers to purchase with a smaller down payment while protecting the lender. PMI typically costs 0.5-1% of the loan amount annually, added to monthly payments. It can be removed once you reach 20% equity in your home.
PMI is different from homeowners insurance — it protects the lender, not the borrower. On a $300,000 loan, PMI can add $125-$250 per month.
Example
On a $300,000 loan with 10% down, PMI at 0.8% costs $2,400/year or $200/month until the loan-to-value ratio reaches 80%.
Frequently Asked Questions
What is PMI (Private Mortgage Insurance)?
Private Mortgage Insurance (PMI) is insurance that protects the lender if a borrower defaults, typically required when the down payment is less than 20%.
How does PMI (Private Mortgage Insurance) work?
PMI allows homebuyers to purchase with a smaller down payment while protecting the lender. PMI typically costs 0.5-1% of the loan amount annually, added to monthly payments. It can be removed once you reach 20% equity in your home.PMI is different from homeowners insurance — it protects the lender, not the borrower. On a $300,000 loan, PMI can add $125-$250 per month.
Can you give an example of PMI (Private Mortgage Insurance)?
On a $300,000 loan with 10% down, PMI at 0.8% costs $2,400/year or $200/month until the loan-to-value ratio reaches 80%.
Free Excel Templates
Also try our free Mortgage Amortization Schedule template
Create a detailed mortgage amortization schedule. See exactly how much principal and interest you pay each month over the loan term.
Download Mortgage Amortization ScheduleAlso try our free Home Affordability Calculator template
Calculate the maximum home price you can afford. Analyze mortgage payments, DTI ratios, and down payment impact on affordability.
Download Home Affordability Calculator