What is PMI in the context of mortgage lending?

Private Mortgage Insurance, or PMI, is a type of insurance that lenders require from homebuyers who are unable to make a significant down payment, typically less than 20% of the home's purchase price. The purpose of PMI is to protect the lender in the event that the borrower defaults on the loan. With a lower down payment, the risk to the lender increases, and PMI mitigates some of that risk by providing insurance coverage.

When a borrower pays for PMI, either as a monthly premium or as a one-time upfront premium, it enables them to secure a mortgage with a lower down payment. This can make homeownership more accessible for individuals who may not have substantial savings but are otherwise qualified for a mortgage. Once the homeowner has built enough equity in the property, they can usually request to cancel the PMI, which reduces their monthly payments and the overall cost of borrowing.

The other options do not accurately represent PMI. Public Mortgage Insurance relates more to government loans, while Payment Management Insurance and Property Management Insurance pertain to different aspects of mortgage and property management that do not fit the context of PMI. Therefore, the correct definition of PMI aligns with Private Mortgage Insurance, directly related to home loans with down payments under 20%.