Definition
PMI is insurance that protects the lender — not you — if you stop making mortgage payments. It is typically required when your down payment is less than 20% of the home's purchase price, and it adds to your monthly housing cost until you build enough equity.
Example
On a $280,000 mortgage with less than 20% down, PMI might cost $140–$420 per month (roughly 0.5%–1.5% of the loan annually). Once your balance reaches 80% of the original purchase price, you can request PMI removal. Lenders must automatically cancel it at 78% LTV.
How It's Calculated
PMI cost ≈ Loan Balance × Annual PMI Rate ÷ 12. Typical annual rates: 0.5%–1.5% depending on credit score and LTV.
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