Private Mortgage Insurance (PMI)

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Private Mortgage Insurance (PMI) is an added fee that lenders require on conventional loans when your down payment is less than 20 percent of the home's price.

PMI protects the lender, not you, against the higher risk of a smaller down payment. It is typically added to your monthly mortgage payment, though it can sometimes be paid upfront. The annual cost usually falls within a fraction of a percent to about one percent of the loan amount, varying with your credit and how much you put down.

The good news is PMI is not permanent. As you pay down the balance and build equity, you can usually request its cancellation once you reach 20 percent equity, and it automatically ends at 22 percent. Estimate the effect on your payment with the main calculator.

Related terms: Down Payment, Loan-to-Value Ratio (LTV)