PMI / Private Mortgage Insurance
Definition
Insurance protecting the lender if you default. Required if you put down less than 20%. Costs 0.5-1.5% of loan amount annually. You pay it as part of mortgage payment until equity reaches 20-22%.
Why It Matters
PMI adds hundreds per month to your mortgage unnecessarily. A $350,000 mortgage with PMI costs $1,750-5,250 per year. You can avoid it by putting 20% down or getting it removed after 20% equity through appreciation.
Example
Buy $400k home with 10% down ($40k). Borrow $360k. PMI costs ~$360-540 per month. After 10 years of appreciation and payments, home is worth $500k and you've paid down to $280k (70% LTV). PMI is removed. Saved 5+ years of PMI by appreciation.
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