PMI (Private Mortgage Insurance)
PMI is insurance that protects the lender — not you — when your down payment is less than 20% of a home's price. It typically costs 0.2% to 1.5% of the loan amount per year, added to your monthly payment, and can be removed once you reach 20% equity in the home.
PMI is a pure cost to the borrower, but a temporary one, and that distinction changes the decision. On a $350,000 home with 10% down, a $315,000 loan at 0.5% costs about $131 a month. Under the Homeowners Protection Act you may request cancellation once the balance reaches 80% of the original value, and the servicer must remove it automatically at 78%, provided payments are current. So paying $131 a month for a few years to buy years earlier is a defensible trade rather than a penalty — quite unlike FHA mortgage insurance, which on a low down payment lasts the life of the loan. Note that cancellation is measured against the original price, so appreciation alone may require a new appraisal.
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