Private mortgage insurance is a policy that protects the lender, not the borrower, against loss if the borrower defaults. It is typically required on conventional loans when the down payment is less than 20 percent of the home's value.
PMI is usually paid as a monthly premium added to the mortgage payment, though other structures exist. The cost depends on factors like the loan-to-value ratio and the borrower's credit. It allows buyers to purchase with a smaller down payment than they otherwise could.
On conventional loans, PMI can generally be canceled once the borrower builds enough equity, often around 20 percent, and by law it usually terminates automatically at 22 percent equity. Government loans like FHA have their own separate mortgage insurance that follows different rules.