PMI or Private Mortage Insurance is insurance purchased by the borrower to protect lenders and investors against loss if the borrower stops making mortgage payments.

Real Estate lenders traditionally require a 20% down payment ro a real estate loan which allows them to recoup their investment in the event that the borrower defaults on the loan.

PMI was developed to make it possible to buy a home with a little three percent down because the pmi will guarantee payments on the balance of the loan that may not be covered if the buyer defaults on the mortgage payments and the foreclosed property is sold.

The cost of the PMI depends upon several factors:

1. The size of the down payment 3%, 5%,10%, 15% etc
2. The type of mortgage you are getting.
3. The amount of coverage the lender requires on your loan.

A federal law includes the following basic consume protections for loan closed after 7/29/1999.

1. Your lender must inform you about your right to request pmi cancellation when your mortgage balance reached 80% of the original value of your house.
2. Your lender will automatically cancel PMI when the mortgage reaches 78% of the home's original value.

The government has some Mortgage Insurance Programs run by the Federal Housing Administration (FHA). This is a more restrictive type of insurance.