PMI (private mortgage insurance)
PMI (private mortgage insurance) is insurance that protects the lender, not you, if you stop making payments on a conventional mortgage. You might be required to buy it when your down payment is less than 20% of the purchase price.
By Beacon · Updated
How it works
PMI can make a conventional loan possible with a smaller down payment, and it usually also applies to refinancing a conventional loan when your equity is under 20%. It does not protect you: if you fall behind, you can still lose the home to foreclosure. The most common way to pay is a monthly premium added to your mortgage payment; some loans use an upfront premium at closing, or both.
For many mortgages on a single-family primary home that closed on or after July 29, 1999, you can ask your servicer in writing to cancel PMI once your balance is scheduled to reach 80% of the home’s original value, or sooner if extra payments get you there. You generally need a good payment history, current payments, no second mortgage or other junior lien, and evidence, such as an appraisal, that the value has not dropped below the original value.
Even without a request, the servicer must end PMI on the date your balance is scheduled to reach 78% of the original value, if you are current. There is also a backstop: PMI must end the month after the midpoint of the loan’s amortization schedule, if you are current. Original value generally means the lower of the sale price or the appraised value when you bought; after a refinance, it is the appraised value at the refinance. FHA and VA loans, and insurance your lender pays for, follow different rules.
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