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Definition
Private Mortgage Insurance (PMI) is required on conventional loans when the down payment is less than 20% of the purchase price, protecting the lender (not the borrower) against losses if the borrower defaults. PMI costs 0.2–1.5% of the loan amount annually, added to monthly payments — roughly $100–$400/month on a $300,000 loan depending on credit score and LTV. Under the Homeowners Protection Act (12 U.S.C. §4901), lenders must automatically cancel PMI when LTV reaches 78% based on the original amortization schedule, and must honor borrower-requested cancellation at 80% LTV based on current appraisal. FHA loans use MIP instead — with different cancellation rules.
Also Known As
mortgage insurance (MI)
conventional mortgage insurance
PMI premium
Used in Context
- At a $350,000 loan with 5% down and 720 credit score, PMI added $145/month — but once the LTV reached 80% through payments and appreciation, the borrower requested cancellation and saved $1,740/year.
- Unlike FHA MIP (which is permanent on 30-year loans with <10% down), conventional PMI cancels automatically at 78% LTV — a key reason some borrowers choose conventional over FHA despite lower upfront costs.
- The lender quoted three PMI scenarios: 3%, 5%, and 10% down — the 10% down option reduced PMI from $280 to $110/month, improving the monthly payment substantially.
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