What is PMI and how can I avoid paying it?

Private Mortgage Insurance (PMI) is an insurance policy provided by private mortgage insurance companies that protects the lender against loss in the event the borrower defaults on the loan. A borrower is normally required to pay PMI when his or her loan amount is greater than 80% of the value of the house. Once the equity you have in your house reaches 20% or more, you may contact your lender to request cancellation of PMI. In most cases, this will require an appraisal, which you may be required to pay for. You can also obtain a second mortgage or Home Equity Line of Credit to reduce your loan-to-value to 80%.