Define: Private Mortgage Insurance

Private Mortgage Insurance (PMI) is a type of insurance that lenders require from borrowers who make a down payment of less than 20% when purchasing a home. PMI protects the lender in case the borrower defaults on the mortgage loan and the property goes into foreclosure. It allows borrowers to obtain a mortgage with a lower down payment, making homeownership more accessible to individuals who may not have enough funds for a large down payment. PMI premiums are typically added to the monthly mortgage payments and may vary based on factors such as the loan amount, loan-to-value ratio, and credit score of the borrower. Once the borrower’s equity in the property reaches 20%, either through payments or appreciation, they can request to cancel PMI, provided they meet certain criteria outlined by the lender and comply with applicable laws and regulations.

PMI. Mortgage insurance provided by nongovernment insurers that protects a lender against loss if the borrower defaults. Many lenders require a a borrower to purchase private mortgage insurance if the loan they are taking out is 80% or higher of the value of the real estate. In most cases, once the borrower has paid back enough of the loan so that it is less than 80% of the value, the borrow is no longer required to purchase this insurance. Private mortgage insurance has benefits for both borrower and lender; the lender is now protected against default, and the borrower is able to secure a loan with a smaller down payment. also called lender’s mortgage insurance.

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This glossary post was last updated: 29th March, 2024.