Private insurance used on certain conventional mortgages to reduce lender risk when the borrower has a smaller equity contribution.
Private mortgage insurance, or PMI, is insurance arranged through a private mortgage insurer for certain conventional loans. It protects the lender or loan owner, not the borrower, if the loan defaults.
PMI can let a borrower use a conventional mortgage without making a 20% down payment, but it raises the cost of the loan. For many conventional purchase loans, PMI is commonly required when the original Loan-to-Value Ratio (LTV) is above 80%, although exact requirements depend on the loan and investor.
The premium is not based on down payment alone. Credit profile, LTV, loan characteristics, property use, coverage level, and premium plan can all affect a quote. A borrower should therefore compare actual Loan Estimates rather than assume every PMI quote uses the same rate.
PMI is discussed during preapproval or loan selection when the lender evaluates the down payment and conventional loan structure. A monthly PMI amount generally appears in the Mortgage Insurance row of the Loan Estimate projected payment. Any upfront private mortgage-insurance premium is generally shown among closing costs.
After closing, borrower-paid monthly PMI may appear on the mortgage statement until it is canceled or terminated under the applicable rules. A lender-paid structure usually appears instead through the loan’s interest rate or pricing.
| Term | What it identifies |
|---|---|
| PMI | The private insurance used with a conventional mortgage |
| Borrower-Paid Mortgage Insurance (BPMI) | Who bears a separately charged premium |
| Monthly Mortgage Insurance | A recurring premium plan |
| Single-Premium Mortgage Insurance | A lump-sum premium plan |
| Split-Premium Mortgage Insurance | Upfront and monthly premium components |
| Lender-Paid Mortgage Insurance (LPMI) | A lender-paid policy whose cost is usually recovered through loan pricing |
A buyer purchases a $350,000 home with a $35,000 down payment. The base loan is $315,000, so the starting LTV is 90%. The conventional lender requires PMI and offers a monthly plan. The borrower must include that monthly premium when comparing the payment with an FHA quote or a conventional quote using a larger down payment.
The federal Homeowners Protection Act (HPA) provides cancellation and termination rules for covered borrower-paid PMI on many principal-residence mortgages. A borrower may generally request cancellation when the balance reaches 80% of the home’s original value if other conditions are met, and automatic termination generally occurs when the scheduled balance reaches 78% if the loan is current.
Those rules have scope and eligibility limits. Investor guidelines may also permit other removal paths, including some based on current value. Borrowers should ask the servicer which rule applies to their loan rather than treat an increase in market value as automatic cancellation.
PMI differs from Mortgage Insurance Premium (MIP). PMI is private insurance for certain conventional mortgages; MIP is the FHA insurance charge.
PMI also differs from Homeowners Insurance. Homeowners insurance covers specified property and liability losses, while PMI addresses lender loss from mortgage default.