Explanations
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Private mortgage insurance (PMI) is generally required for conventional residential mortgage loans when the loan-to-value (LTV) ratio is 80% or higher, meaning the borrower’s down payment is less than 20% of the property’s value. This insurance protects the funding lender from the risk of default. PMI differs from the Mortgage Insurance Premium (MIP) associated with FHA loans and is not required for VA loans. Under the federal Homeowners’ Protection Act, a lender is supposed to remove the monthly PMI fee if the LTV for the first mortgage falls below 80%, for example, due to property appreciation or principal payments.