PMI (Private Mortgage Insurance)

Conventional lenders require private mortgage insurance when the down payment is under 20% of the purchase price. The distinction worth holding onto is who it protects: PMI covers the lender's loss if you default. It buys you nothing except access to the loan.

It typically runs between 0.3% and 1.5% of the loan amount per year, priced on your credit score and how much you put down, and is collected monthly alongside principal, interest, taxes, and insurance.

It is temporary, and the rules are specific. You may request cancellation once the balance reaches 80% of the home's original value with a good payment record, and the servicer must terminate it automatically at 78% on the original amortization schedule. Appreciation can get you there sooner, but that route requires a new appraisal and the lender's cooperation rather than happening on its own.

FHA loans work differently and are frequently confused with this. Their mortgage insurance premium generally lasts the life of the loan when the down payment is small, meaning the only way out is refinancing into a conventional loan once equity allows.

Lender-paid PMI removes the monthly line item by raising the interest rate instead. That trade looks appealing but the higher rate is permanent, so it usually loses if you hold the loan long enough to have cancelled ordinary PMI.