Which statement is true about PMI?

Private Mortgage Insurance (PMI) plays a crucial role in the lending process, especially when it comes to financing a home with a down payment of less than 20%. When borrowers do not provide at least 20% of the purchase price as a down payment, lenders consider the loan to be higher risk. PMI mitigates this risk by providing the lender with insurance against default. Therefore, when a borrower puts down less than 20%, PMI is commonly required to protect the lender’s investment.

This requirement supports borrowers who may not have substantial savings for a larger down payment, allowing them to access home financing and enter the housing market with a smaller upfront investment. While PMI can add to the monthly mortgage payment, its role is primarily to protect the lender rather than providing benefits to the borrower. Consequently, it’s an important consideration for potential homeowners when calculating total homeownership costs.

The other statements do not accurately reflect the nature of PMI. It does not protect both parties equally—its primary purpose is to minimize the lender's risk. Additionally, PMI is not optional when a borrower is financing with less than 20% down payment; rather, it becomes a mandatory requirement. Lastly, PMI does not directly lower the interest rate on a mortgage; in fact