Private mortgage insurance, or PMI, may be required on some conventional mortgages when the borrower makes a smaller down payment or has limited equity. It protects the lender against certain losses if the borrower defaults. It does not make the borrower’s payment or equity safe.
How PMI appears
PMI may be paid monthly, upfront, through lender-paid pricing, or in another structure allowed by the loan. A lender-paid arrangement can mean a higher interest rate rather than a separate monthly line, so compare the total cost over the expected time in the loan.
Ask about removal before closing
Cancellation and automatic termination rules depend on the loan, payment history, property type, value used, and applicable law. Ask for the lender’s written requirements. A borrower-requested cancellation may require current payments, a stated equity level, and evidence that the property has not declined in value or acquired subordinate liens.
Compare alternatives carefully
- A larger down payment and smaller emergency reserve
- Monthly borrower-paid PMI
- Lender-paid insurance through a higher rate
- A different conventional offer
- An FHA, VA, USDA, or assistance program when eligible
Each alternative has different insurance, guarantee-fee, rate, and refinancing implications. Government mortgage insurance is not the same as PMI, and cancellation rules can differ materially.
After closing
Keep statements, monitor the principal balance, and contact the servicer before the expected cancellation point. Continue paying the amount billed until the servicer confirms a change. If PMI is removed, verify the new payment and effective date on the following statement.
PMI can help a borrower buy with less cash upfront, but it is part of the housing cost. Price it alongside the rate, closing costs, taxes, insurance, and the cash reserve left after closing.