Today’s lesson is on PMI. What is that?
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Private mortgage insurance (PMI) is insurance coverage that homeowners are required to have if they’re putting down less than 20% of the home’s cost.

Basically, PMI gives mortgage lenders some back-up if a house falls into foreclosure because the homeowner couldn’t make their monthly mortgage payments.

You also might be required to pay for it if you have a conventional loan. PMI protects the lender—not you—if you stop making payments on your loan. 

PMI is arranged by the lender and provided by private insurance companies. If you’re refinancing with a conventional loan and your equity is less than 20 percent of the value of your home, PMI is also usually required.

One thing to remember is you might be able to cancel your monthly mortgage insurance premium once you’ve accumulated a certain amount of equity in your home. It’s always a good idea to ask your lender about their cancellation policies.

For more information from the Consumer Financial Protection Bureau, click here.

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