PMI, also known as private mortgage insurance, protects the lender. It does not the borrower if you stop making payments on the loan. PMI is required when you make a down payment of less than 20 percent on a conventional home purchase or if you are refinancing and your equity is less than 20 percent of the value of your home.
Paying for PMI
The most common way to pay for PMI is to pay a monthly premium, which is added to your mortgage payment. You will find the premium on your Loan Estimate (formerly the GFE), and the Closing Disclosure (formerly the HUD) on page 1 in the Projected Payment section. There is an upfront premium that is shown on page 2 of the Loan Estimate and Closing Disclosure.
There is also an option to purchase the mortgage insurance. Your loan officer should help you calculate the total cost over different time frames to see if it is beneficial to you.
PMI is not all bad