Lenders Mortgage Insurance (LMI), also known as Private mortgage insurance (PMI) in the US, is insurance payable to a lender or trustee for a pool of securities that may be required when taking out a mortgage loan. PMI is procured by the borrower as a compensation for the inability to equip himself/ herself with the requisite down payment for procuring a mortgage loan. The down payment is usually 20 to 25% of the purchase price of the home.

It is also an insurance to offset losses in the case where a borrower or mortgagor is not able to repay the loan and the lender is not able to recover its costs after foreclosure and sale of the mortgaged property. PMI, limits the lender's exposure to losses in cases when the borrower defaults on the mortgage loan.

The mortgagor pays a premium for the insurance that is provided by a private company. The cost of PMI includes closing costs and the ongoing monthly principal and interest payments.

According to the new rules laid down by Fannie Mae and Freddie Mac, borrowers, who are providing a down payment of 20-25% to avoid purchasing PMI, are not really benefiting in the form of low interest rates.

The mortgage rate charged on the loans sanctioned to these borrowers shows the rate charged to people purchasing PMI. This is because both Fannie Mae and Freddie Mac think borrowers, who are parting with the minimum down payment, as likely to default as those purchasing PMI.