Lender-protective insurance used on many conventional low-down-payment mortgages, usually until borrower equity reduces the lender's loss risk.
Private mortgage insurance (PMI) is lender-protective insurance commonly used on conventional mortgages when the borrower starts with a relatively small down payment.
The borrower usually pays for it, but the economic protection mainly benefits the lender.
PMI matters because it changes the real cost of buying with a smaller down payment. It can increase monthly housing expense, alter the breakeven point between buying now and waiting, and affect how borrowers compare a conventional mortgage with government-backed alternatives.
PMI is the conventional-loan branch of the broader Mortgage Insurance category.
| Structure | Typical context | Main borrower effect |
| — | — | — |
| Borrower-paid PMI | Monthly premium on a conventional low-down-payment mortgage | Raises recurring housing cost |
| Single-premium PMI | Upfront payment at or near closing | Raises upfront cost or financed balance |
| Lender-paid mortgage insurance | Insurance cost embedded indirectly through pricing | Often raises the note rate instead of a separate premium |
The key finance logic is straightforward: when the lender has less borrower equity protecting the position, the lender wants an added loss buffer.
A borrower buys a home with 5% down using a conventional mortgage. Because the lender is financing most of the home’s value, the lender may require PMI until the borrower has built enough equity for that extra protection to be unnecessary.
Homeowners insurance protects against property damage and liability risks. PMI addresses default-related lending risk.
PMI belongs to conventional mortgages. Mortgage Insurance Premium (MIP)") belongs to the FHA insurance framework.
That difference matters when comparing the long-run cost of conventional and FHA financing.
Mortgage Insurance: Broader category that includes PMI and government-backed mortgage-insurance structures.
Loan-to-Value Ratio: Key leverage measure behind when PMI is required.
Down Payment: Starting equity contribution that affects whether PMI applies.
Mortgage Insurance Premium (MIP)"): Closest FHA comparison.
Conventional Loan: Main mortgage structure where PMI appears.