What is private mortgage insurance (PMI)?
Why certain conventional mortgages require it, whom it protects, how borrowers may pay it, and when cancellation rules may apply.
Private mortgage insurance, or PMI, is insurance a lender may require on a conventional mortgage when the borrower's equity or down payment is below the lender's threshold. PMI protects the lender or mortgage owner against part of the loss if the borrower defaults. It does not protect the borrower from foreclosure or make missed payments for the borrower.
Key facts
- Conventional loan coverage: PMI is private mortgage insurance; FHA mortgage insurance is a different system.
- Protects the lender: The borrower pays for coverage that reduces the lender or investor's loss exposure.
- Cost is risk-based: Credit profile, loan-to-value ratio, coverage, occupancy, term, and product can affect pricing.
- Cancellation may be available: Federal and investor rules can provide original-value or current-value removal paths for eligible borrower-paid PMI.
Why PMI exists
Conventional mortgages with smaller down payments can expose the lender or loan owner to greater loss severity if the borrower defaults and the property sale does not repay the debt. PMI transfers part of that risk to a private mortgage insurer. It can therefore support conventional financing at loan-to-value ratios that otherwise might not be available.
The CFPB explains that PMI protects the lender, not the borrower. The borrower remains responsible for the mortgage and can still face credit damage and foreclosure after missed payments.
When a conventional loan may require PMI
PMI is commonly associated with a conventional purchase down payment below 20 percent or a conventional refinance with less than 20 percent equity, but the precise requirement depends on the loan and lender. Some structures use lender-paid mortgage insurance or different pricing instead of a separately itemized monthly charge.
A 20 percent down payment is therefore not a universal mortgage requirement. Borrowers can compare the cost of PMI with the cost and opportunity tradeoffs of using more cash, changing the loan structure, or choosing another eligible program.
How PMI may be paid
Borrower-paid PMI is often collected monthly with the mortgage payment. Other permitted structures can include a single premium paid at closing or a combination of upfront and monthly amounts. Lender-paid mortgage insurance is generally recovered through the loan's pricing rather than a cancellable monthly borrower charge.
Compare the Loan Estimate and Closing Disclosure for the payment amount, upfront charges, and projected duration. A lower monthly payment does not by itself show the lowest total cost if it requires more cash or different rate pricing.
What affects the cost
Mortgage-insurance pricing can reflect loan-to-value ratio, credit characteristics, occupancy, property type, loan purpose, term, amortization, coverage percentage, and insurer. Pricing can therefore differ between borrowers and structures even when the loan amounts are similar.
Use the actual mortgage-insurance quote and disclosure rather than a generic percentage. The CFPB mortgage-insurance overview also distinguishes conventional PMI from government mortgage-insurance or guarantee programs.
PMI cancellation is a separate question
Many borrower-paid conventional mortgages on principal residences have federal cancellation and termination rights tied to the original property value and payment history. Fannie Mae and Freddie Mac servicing rules may provide additional current-value paths with seasoning, loan-to-value, valuation, and other requirements.
Those rules are detailed in the separate PMI removal guide. Do not assume that FHA mortgage insurance, lender-paid mortgage insurance, investment-property coverage, or every conventional loan follows the same cancellation framework.
PMI is not FHA MIP
FHA loans use mortgage insurance premiums, commonly called MIP, under HUD rules. Duration and cost depend on the FHA case, term, loan-to-value ratio, and current program rules. Conventional PMI cancellation rules do not remove FHA MIP.
Compare the complete FHA and conventional structures over the expected holding period, including upfront costs, monthly insurance, rate, qualification, and possible future changes. Conventional is not automatically better, and FHA is not automatically cheaper.
Primary sources
Reviewed against the linked primary sources on September 2, 2026. This page is general mortgage education; the current contract, disclosures, loan documents, agency or investor rules, and servicer records control a specific transaction.
Questions about this term
Does PMI protect the borrower?
No. PMI protects the lender or mortgage owner against part of a loss if the borrower defaults. It does not make payments for the borrower or prevent foreclosure.
Is PMI required on every conventional mortgage below 20 percent down?
It is common, but the exact treatment depends on the loan structure and lender. Some loans use borrower-paid PMI, lender-paid mortgage insurance, or other pricing. Review the actual Loan Estimate and mortgage-insurance disclosure.
How is PMI paid?
Borrower-paid PMI is often monthly, but single-premium or split-premium structures may be available. Lender-paid mortgage insurance is generally reflected in loan pricing rather than a separately cancellable monthly borrower charge.
Can PMI be removed?
Many eligible borrower-paid conventional mortgages have federal cancellation or termination paths, and agency servicing rules may offer current-value paths. Loan ownership, property type, value basis, seasoning, payment history, and valuation requirements matter.
Is FHA mortgage insurance the same as PMI?
No. FHA uses mortgage insurance premiums under HUD rules. Conventional PMI cancellation law does not govern FHA MIP, and the duration and cost rules are different.
Compare cost over the time you expect to keep the loan
Use the actual insurance quote, loan pricing, upfront cash, monthly payment, and cancellation rules rather than treating 20 percent down as the only valid structure.