Private mortgage insurance, or PMI, is a type of insurance typically required on a conventional home loan when your down payment is less than 20% of the home's price. It is added to your monthly mortgage payment.
Who PMI protects: this is the part many homebuyers find surprising — PMI protects the lender, not you. It covers the lender against loss if the loan is not repaid. You pay for it, but the protection is theirs.
Why lenders require it: a smaller down payment means the lender is financing more of the home's value — a higher loan-to-value ratio. PMI offsets that added risk, which is what allows buyers to purchase with less than 20% down.
How long you pay PMI:
- You can usually request cancellation once your loan balance reaches about 80% of the home's original value — that is roughly 20% equity.
- By law, PMI on most conventional loans automatically ends when the balance reaches 78% of the original value, provided you are current on payments.
- Building equity through payments — or a rise in home value — moves you toward removing PMI.
How to avoid PMI: the most direct way is a down payment of 20% or more. Loan programs differ, too — note that government-backed loans such as FHA loans use their own mortgage insurance, which works differently from conventional PMI.
See the types of mortgages RMO offers, and review how escrow accounts work, since PMI is often collected alongside taxes and insurance.