Finance
What is the purpose of private mortgage insurance (PMI)?
ATo insure the buyer's home against damage
BTo protect the lender if the borrower defaults when the LTV exceeds 80%✓ Correct
CTo guarantee the borrower's title against defects
DTo insure the loan against interest rate increases
Explanation
PMI protects the lender—not the borrower—in case of default on a conventional loan when the borrower's down payment is less than 20% (LTV greater than 80%). PMI can be cancelled once the borrower reaches 20% equity.
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