Private mortgage insurance (PMI)
National Real Estate Exam glossary · Financing
Definition
Insurance that protects the lender against loss if a borrower defaults on a conventional loan with a loan-to-value ratio above 80 percent. The borrower pays the premium; once sufficient equity is established, PMI may be cancelled. It protects the lender, not the borrower.
Private mortgage insurance (PMI) in plain English
When you buy a house with a small down payment, the bank is taking a bigger risk that you might stop paying. PMI is an insurance policy that covers the BANK — not you — if that happens, and yet you're the one who has to pay for it every month. It kicks in on regular (conventional) loans whenever you borrow more than 80 percent of the home's value, meaning you put down less than 20 percent. Once you've paid down enough of the loan to own at least 20 percent of the home's value (your 'equity'), you can usually cancel PMI and stop paying it. Think of it as a safety net the bank makes you buy for the bank.
Also called: PMI
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Practice Private mortgage insurance (PMI)
Which of the following will the lender almost certainly require?
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