Mortgage & Housing/priː.vət ˈmɔːr.ɡɪdʒ ɪnˈʃʊr.əns/
Private Mortgage Insurance (PMI)
A policy that protects lenders against loss if a conventional loan borrower defaults, typically required when down payment is under 20%.
Plain-English Explanation
When buying a home with less than 20% down payment, lenders view the loan as higher risk and require PMI. PMI is added to your monthly mortgage statement until your home equity reaches 20%-22%.
Mathematical Formula
Annual PMI Premium = Loan Balance * Annual PMI Rate (typically 0.3% - 1.5%)
Monthly PMI = Annual PMI Premium / 12.
Real-World Worked Example
On a $320,000 mortgage balance with a 0.5% PMI rate, your annual PMI is $1,600, resulting in an added monthly fee of $133.33.
Why Private Mortgage Insurance (PMI) Matters for Your Finances
PMI costs money without building home equity. Reaching 20% equity allows homeowners to request cancellation of PMI, reducing monthly housing costs.
Common Misconception
PMI protects the LENDER against default, not the homebuyer.
Interactive Tool
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