What is PMI?

Have you heard of private mortgage insurance, also known as PMI? Lenders require borrowers to pay PMI when they don't have a 20% down payment on a home. PMI is a percentage of your loan amount, ranging from 0.3% to 1.5%, depending on your credit score. PMI is a monthly payment that is calculated into your mortgage.

The good news is that you don't have to pay PMI forever. Once you start paying down your mortgage principal and have 20% equity in your home, you can ask your mortgage holder to remove the PMI charges from your account.

PMI might sound intimidating, but if you are close to reaching 20% equity and believe you can make substantial mortgage payments in the first year of homeownership, you may be able to eliminate that monthly payment sooner than you expect.