What is PMI?

Private Mortgage Insurance (PMI) is an insurance premium required on conventional home loans when a borrower puts down less than 20% of the purchase price. PMI protects the lender—not the borrower—against financial loss in the event of default and foreclosure. Annual PMI costs typically range from 0.5% to 1.5% of the original loan balance ($125 to $375 per month on a $300,000 loan). Under the federal Homeowners Protection Act of 1998, lenders must automatically terminate borrower-paid PMI once your loan balance reaches 78% of the home's original appraised value, or you can request cancellation once your principal hits 80%.