PMI (Private Mortgage Insurance)
Insurance a lender requires when a down payment is below a certain threshold, protecting the lender if the borrower defaults.
PMI protects the lender, not the borrower, but the borrower pays for it — typically added to the monthly mortgage payment. It usually applies when a down payment is below 20% of the home's value, and can generally be removed once enough equity has built up.
Worked Example
On a $320,000 loan, PMI might run 0.5–1% of the loan annually — roughly $1,600–$3,200 per year, or about $133–$267 added to the monthly payment — until equity crosses the 20% threshold.
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