What is private mortgage insurance (PMI)?

Private mortgage insurance (PMI) is insurance that protects the lender — not the borrower — if you default on your loan. It is typically required on conventional loans when your down payment is less than 20% of the home's purchase price. PMI costs range from 0.5% to 1.5% of the loan amount annually, added to your monthly payment. Once your LTV reaches 80%, you can request PMI cancellation; lenders are legally required to drop it when your LTV hits 78% based on original value. FHA loans have their own mortgage insurance premiums (MIP) with different cancellation rules.