What is the primary purpose of private mortgage insurance (PMI)?

The primary purpose of private mortgage insurance (PMI) is to protect the lender against losses due to default. When a borrower is unable to make their mortgage payments and the property goes into foreclosure, the lender bears the financial risk of loaning money for the property. PMI acts as a safeguard for the lender, particularly when borrowers are unable to make a substantial down payment (usually less than 20% of the home's purchase price).

By obtaining PMI, the lender can recover at least a portion of their losses in the event of default, which makes it possible for more borrowers to qualify for a mortgage loan despite having lower equity in the property. This protection encourages lenders to offer loans to higher-risk borrowers, thereby broadening access to home financing.