Definition
Insurance that protects the lender, not you, and is usually required on a conventional loan when you put down less than 20%.
What it means
Private mortgage insurance, or PMI, is added to many conventional home loans with less than 20% down. You pay the premium, often monthly as part of the mortgage payment, but it protects the lender if you stop paying. Under the federal Homeowners Protection Act, for most loans made since 1999 you can ask the lender to cancel PMI when your balance is scheduled to reach 80% of the home's original value, if you have a good payment history, and the lender must end it automatically when the balance is scheduled to reach 78%. FHA loans use a different kind of insurance, the mortgage insurance premium, with separate rules that may last for the life of the loan. The cost of PMI appears on your Loan Estimate and Closing Disclosure.
Example
On a $300,000 home bought with $30,000 down, PMI can usually be dropped on request once the balance is scheduled to reach $240,000, which is 80% of the original value.
Illustrative numbers only. Your situation will differ.