Definition
Insurance required when your down payment is less than 20%, protecting the lender if you default. PMI adds to monthly payments until your loan reaches 80% of home value.
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Find my pathAbout this term
PMI costs range from 0.5-1.5% of the loan amount annually and is added to monthly payments. PMI can be canceled once the loan reaches 80% of original home value through appreciation or loan paydown. Understanding PMI costs helps buyers evaluate the true cost of putting down less than 20%.
Pro Tip
Calculate total PMI costs before deciding on a down payment less than 20%.
Example
The buyer put down 10% and was required to pay PMI of $200/month, adding $2,400 annually to mortgage costs.