Why might someone need private mortgage insurance?

Private mortgage insurance (PMI) serves a specific purpose in the context of home financing. It is generally required by lenders when a borrower is unable to provide a down payment of at least 20% of the home’s purchase price. This requirement exists because a lower down payment increases the lender's risk in the event that the borrower defaults on the loan. PMI is designed to protect the lender by providing a safety net to cover part of the unpaid balance.

When a borrower puts down less than 20%, the likelihood of default can be higher. PMI mitigates this risk by ensuring that the lender has a means of recovering some of the funds despite the lower equity stake. Thus, the presence of PMI allows borrowers to purchase homes with smaller down payments, enabling homeownership opportunities while simultaneously safeguarding the lender’s investment.

In contrast, the other options do not align with the primary function of private mortgage insurance. Lowering mortgage payments, covering repairs, and reducing property taxes address different aspects of home financing or ownership and do not pertain directly to the risk management feature that PMI provides to lenders.