PMI (Private Mortgage Insurance)
Insurance a conventional borrower pays when the loan-to-value ratio is above 80 percent, protecting the lender against default.
Private mortgage insurance protects the lender, not the borrower, against loss if the borrower defaults. It is required on conventional loans when the down payment is less than 20 percent, meaning the loan-to-value ratio is above 80 percent.
PMI can be removed as the borrower builds equity. Under federal rules, the lender must automatically terminate PMI when the loan balance reaches 78 percent of the original value, provided the borrower is current on payments.
On the exam
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Residential Mortgages (9% of the exam)
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- Mortgage
The security instrument that pledges real property as collateral for a debt, creating a lien in favor of the lender.
- Loan-to-Value Ratio (LTV)
The ratio of the loan amount to the property value, used to size a loan and to decide whether PMI applies.
- Lien Theory
The rule, followed in Florida, that a borrower keeps title to mortgaged property while the lender holds only a lien.
This definition is Florida real estate exam-prep education, not legal, tax, or professional advice. Verify current rules against the official source before relying on them for a real transaction. Back to the full glossary.