Function

• PMI protects the lender in case the borrower defaults on the loan. PMI does not offer any protection to the borrower, such as payment assistance in the event of a financial crisis.
  
  

Requirements

• Lenders typically require borrowers to pay for PMI if the down payment does not equal at least 20 percent of the home's value. Some lenders may waive this if the borrower accepts a higher interest rate.
  
  

Size

• PMI typically costs 0.5 percent of the balance of the loan per year. The payments are made each month as part of the mortgage payment from an escrow account. An escrow account is an account held by the bank that you pay money into, which the bank then uses for insurance costs.
  
  

Time Frame

• PMI must be paid until there is 20 percent equity in your home. However, if you do not request it to be canceled, your lender will continue to charge PMI until you reach 22 percent equity.
  
  

Benefits

• PMI, while adding extra cost to the mortgage, allows people to take out mortgages with smaller down payments than lenders would otherwise allow. Without PMI, most lenders would require a minimum 20 percent down payment.
  
  

Considerations

• You can attain 20 percent equity in your home through paying off the mortgage, increases in your home's value, or both. For example, if you added a garage to the home, the value would increase.