Private Mortgage Insurance (PMI)

Private Mortgage Insurance, or PMI, is an insurance premium you pay that protects the lender, not you, when you put down less than 20 percent on a conventional loan. It lets you buy a home with a smaller down payment, but it adds to your monthly cost until you build enough equity. The premium is usually added to your monthly mortgage payment, though some loans allow other arrangements. On most conventional loans you can request that PMI be removed once your loan balance drops to about 80 percent of the original value, and it typically ends automatically near 78 percent. The exact rate depends on your credit, loan size, and down payment, so confirm the numbers with your lender. PMI applies to conventional loans; government-backed loans handle mortgage insurance differently.