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Private Mortgage Insurance (PMI)
Definition
Insurance protecting the lender when down payment is less than 20% on a conventional mortgage.
Explanation
PMI costs 0.3-1.5% of the loan amount annually, added to monthly payments. It can be removed when LTV reaches 80%. PMI protects the lender, not you. Options to avoid: 20% down, piggyback loan (80-10-10), or lender-paid PMI.
PMI is different from homeowners insurance. On a $300,000 loan, PMI adds $125-250 per month.
Example
$400,000 home with 10% down = $360,000 mortgage. PMI at 0.8% = $2,880/year = $240/month until 20% equity reached.