Private Mortgage Insurance (PMI)
What Is Private Mortgage Insurance?
Private Mortgage Insurance (PMI) is insurance that protects the lender if a borrower defaults on a conventional mortgage.
It is typically required when a borrower makes a down payment of less than 20%.
PMI does not protect the homeowner — it protects the lender.
Why It Matters in a Mortgage
PMI increases monthly housing costs.
It allows buyers to:
- Purchase sooner
- Make smaller down payments
- Enter homeownership without 20% equity
Conventional loans influenced by standards from Freddie Mac may require PMI below 20% equity.
PMI can often be removed once sufficient equity is reached.
How It Works
Loan-to-Value (LTV) above 80% → PMI required
As principal is paid down and equity increases, PMI may be canceled.
PMI vs. MIP
PMI → Conventional loans
MIP → FHA loans backed by the Federal Housing Administration
FAQs About PMI
Can PMI be removed?
Yes, typically at 20% equity.
Does PMI affect credit score?
No, but it affects affordability.
Is PMI tax deductible?
Sometimes, depending on tax law.
Related Terms
