What does PMI stand for?

PMI stands for Private Mortgage Insurance. This is a type of insurance that lenders require from homebuyers who are obtaining a mortgage and making a down payment of less than 20% of the home’s purchase price. The purpose of PMI is to protect the lender from the risk of default on the loan. If the borrower fails to make the payments and the property goes into foreclosure, PMI helps cover the lender’s losses.

Homebuyers typically pay for PMI as part of their monthly mortgage payment, and it can often be canceled once the mortgage balance reaches a certain point—usually when the equity in the home exceeds 20%. Understanding PMI is essential for prospective homeowners since it can significantly impact their monthly housing budget.