Private mortgage insurance (PMI)
Insurance that protects the lender on a conventional loan when the down payment is under 20%. The borrower pays for it, usually monthly. It can be removed once equity reaches set levels, and ends automatically at 78% of the original value.
Also called: PMI, mortgage insurance, MI
Related terms
A mortgage not insured or guaranteed by a government agency such as FHA, VA or USDA. Most follow Fannie Mae and Freddie Mac rules and require private mortgage insurance when the down payment is under 20%.
The part of the purchase price you pay in cash rather than borrow. A larger down payment lowers the loan amount and can remove the need for mortgage insurance on a conventional loan.
The loan amount divided by the property's value or price, whichever is lower, as a percentage. Lower LTV means less risk for the lender and often better pricing; above 80% usually triggers mortgage insurance on conventional loans.
Mortgage insurance on FHA loans, made up of an upfront premium usually added to the loan plus an annual premium paid monthly. With less than 10% down, the annual premium lasts for the life of the loan.
The part of a property's value you own outright: its market value minus what you owe on loans against it. Equity grows as you pay down the loan and as the property gains value.