When you buy a house, you have to pay a down payment for it. It would be nice if you have 20% down of the final value of the property. But not everyone can have that amount of money saved. What will happen if you have less than 20% down payment on your dream home? You will have to pay mortgage insurance.
Private mortgage insurance (or PMI) is required by a lender. It is to protect the lender, just in case you can’t pay your mortgage. It is a guarantee, that the lender is going to get paid. It is for a conventional loan.
The buyer usually makes private mortgage insurance payments monthly together with mortgage payments. Once the buyer paid enough monthly payments towards the mortgage to have 20% equity in the home, it is possible to ask the lender to cancel the mortgage insurance payments.
Lets look at this example: The value of your home right now is $100,000. When you bought a home, you made a $10,000 down payment for it. After so many monthly mortgage payments the equity right now is $20,000. In this case you can ask your lender to cancel your private mortgage insurance.