What does PMI stand for in the context of mortgages?

In the context of mortgages, PMI stands for Private Mortgage Insurance. This type of insurance is typically required by lenders when a borrower is unable to make a down payment of at least 20% of the home’s purchase price. PMI protects the lender in the event that the borrower defaults on the loan. By adding PMI to the mortgage, lenders can mitigate their risk and make loans available to borrowers who otherwise might not qualify due to a smaller down payment.

Private Mortgage Insurance can be a significant expense for homeowners, but it also allows them to purchase homes sooner rather than saving for a larger down payment. Once the homeowner has built up enough equity in the property, they can usually request the cancellation of PMI.

This term specifically reflects the private insurance element; other options refer to concepts that do not relate directly to the requirements and practices surrounding mortgage insurance. For instance, primary mortgage investments and property market indicators deal with investment and real estate valuation aspects rather than insurance, while public mortgage insurance does not accurately classify the private insurance model that PMI represents.