Not to be confused with mortgage life insurance (designed to pay off a mortgage in the event of the borrower's disability or death), PMI is insurance that helps protect the lender against losses due to foreclosure, and also allows them to accept lower down payments than would otherwise be possible.

PMI is used only with conventional financing and is payable in a lump sum at closing or as a monthly premium included in the mortgage payment.

PMI is typically required when the loan amount requested exceeds 80% of the subject property's value. Premium amounts depend on the loan-to-value ratio in three categories: 80.01%-85.00%, 85.01% to 90.00% and 90.01% to 95.00% - the higher the ratio, the higher the premium.

PMI premiums also depend on the loan amount and the type of loan. Adjustable rate loans tend to have higher premiums than fixed rate loans.

Generally, PMI can be canceled once a borrower has 20% equity in their home. Check your insurer’s policy for an "escape" clause and guidelines describing under what conditions you can stop paying PMI.