Finance · Glossary
What is PMI (Private Mortgage Insurance)?
Quick definition
Insurance required by lenders when the down payment is less than 20%. Protects the lender, not the borrower.
Full explanation
PMI (Private Mortgage Insurance) is an insurance premium added to a mortgage when the borrower's down payment is less than 20%. It protects the lender (not the borrower) in case of default. PMI typically costs 0.5–1.5% of the original loan amount annually. Once the borrower reaches 22% equity (the loan balance is 78% of the original home value), they can request PMI removal. By law, PMI must be automatically terminated at 78% LTV. PMI can be avoided entirely with a 20%+ down payment, VA loans (military), or some lender programs. It is distinct from homeowners insurance, which protects the borrower.
Related calculators
Calculators that use or explain PMI.
Related terms
More from Finance
APR (Annual Percentage Rate)
The yearly cost of a loan, expressed as a percentage, including most fees. Used when borrowing money.
APY (Annual Percentage Yield)
The yearly return on a deposit or investment, including the effect of compounding. Used when saving money.
Compound Interest
Interest calculated on the initial principal AND on the accumulated interest from previous periods. The engine of long-term wealth.
Simple Interest
Interest calculated only on the original principal, not on accumulated interest. Used in short-term and consumer loans.
Principal
The original sum of money borrowed or invested, not including interest. The base on which interest is calculated.
Amortization
Spreading loan payments over time so each payment covers both principal and interest, with the loan fully paid off at the end.
Last reviewed: June 15, 2026 • Category: Finance