What is private mortgage insurance (PMI) and when is it required?

Private mortgage insurance, or PMI, is insurance that protects the lender if the borrower defaults on a conventional loan. It is required when the borrower's down payment is less than 20 percent of the purchase price, resulting in a loan-to-value ratio above 80 percent. PMI is paid monthly by the borrower and can be canceled once equity reaches 20 percent of the original value through payments, and must be automatically terminated at 22 percent equity. PMI is different from FHA mortgage insurance, which applies to government-insured loans and has different cancellation rules.