Direct answer
What does private mortgage insurance mean?
Private mortgage insurance (PMI) is insurance that protects a conventional mortgage lender against loss if the borrower defaults.
Exam cue: PMI protects the lender, even though the borrower commonly pays the premium.
What does it look like in a question?
Example
A conventional loan with a high LTV may require PMI under the loan terms.
Common exam trap
What should you not confuse it with?
PMI is not homeowners insurance and does not protect the borrower's belongings.
Related real estate finance terms
AmortizationAmortization is the repayment of debt through scheduled payments that reduce principal over time.Balloon paymentA balloon payment is a final payment that is substantially larger than the preceding scheduled payments.Debt serviceDebt service is the principal and interest a borrower must pay on a loan during a stated period, usually a year.EquityEquity is the owner's value in property after subtracting liens from the property's value for the calculation being used.ForeclosureForeclosure is the legal process used to enforce a mortgage lien after default and subject the property to sale or another court-ordered remedy.Loan-to-value ratioThe loan-to-value ratio (LTV) is the loan amount expressed as a percentage of the applicable property value or price.
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