What is PMI?
PMI stands for Private Mortgage Insurance. It is an insurance policy that your lender may require if you have less than a 20% down payment. Most lenders feel that if you paid 20% down and have what is referred to as an 80-20 loan that you are less likely to default on the loan. If you do get a loan with less then a 20% down payment the banks feel that you have less to lose so you must pay for PMI. It is an insurance policy in which you pay the premiums, but do not collect on if you default on the loan.
There are some loan packages that are less then 20% down and do not require PMI. You will, however, have a slightly higher interest rate then a conventional loan with the bank paying for the PMI out with extra money from the higher interest rate.
Once you pay the loan down so that the loan ratio is 80-20 your lender will no longer require PMI. You must ask that the requirement for PMI be lifted from the loan. The banks typically do not inform you when your loan reaches the 80-20 mark. So pay attention to your loan balance and get rid of the extra amount going to PMI as soon as you can.