What Is Private Mortgage Insurance (PMI)?
Private Mortgage Insurance (PMI): Insurance that protects the lender on conventional loans with less than 20% down, removable later.
Also called: PMI
Private mortgage insurance (PMI) protects the lender if you stop paying a conventional loan with less than 20% down. You pay for it, but it makes low down payment loans possible.
Cost
PMI usually costs 0.2% to 1.5% of the loan per year, depending on your credit score, down payment and loan type. On a $380,000 loan, 0.5% is about $158 a month.
How it's paid
- Monthly: added to your payment (most common)
- Single premium: paid once at closing
- Lender-paid: built into a higher rate
Removing it
You can ask to cancel monthly PMI once your balance reaches 80% of the original value, and it ends automatically at 78%, if you're current on payments. See PMI removal.
Good to know
PMI applies to conventional loans. FHA has a mortgage insurance premium, USDA a guarantee fee, and VA a funding fee instead.