private mortgage insurance - Investment & Finance Definition
An insurance policy that a home buyer must buy if the down payment is less than 20 percent of the purchase price. The mortgage insurance is payable to the mortgage lender in the event that the buyer defaults on the mortgage, and is paid monthly as part of the mortgage payment. The purchaser has no option to decline the insurance. However, new federal legislation compels mortgage lenders to cancel the PMI after two years if the equity in the house rises above 20 percent, or in some cases 25 percent, and if payments have been made on time. PMI payments aren’t deductible from income tax.