Mortgage Loan Officer National Practice Exam 2025 – All-in-One Guide to Master Your Certification!

PMI stands for Private Mortgage Insurance. This form of insurance is usually required by lenders when a borrower has a down payment of less than 20% of the home's purchase price. The main purpose of PMI is to protect the lender in case the borrower defaults on the loan. By having PMI, the lender reduces their risk because the insurance can cover a portion of their losses in such scenarios. Borrowers typically pay for PMI as a monthly premium or as a one-time upfront premium.

Understanding PMI is crucial for borrowers, as it affects their overall mortgage costs, and being familiar with it can help them make more informed decisions regarding their mortgage options. The other options do not accurately reflect the meaning of PMI in this context; they either misrepresent the purpose or the correct terminology related to mortgage insurance.