Understanding Mortgage Insurance

A

The correct answer is A. Private mortgage insurance (PMI).

Private mortgage insurance is a type of insurance policy that mortgage lenders require borrowers to purchase when the down payment on a property is less than 20% of its purchase price. The purpose of PMI is to protect the lender in the event that the borrower defaults on the loan and the property goes into foreclosure.

PMI typically involves a monthly premium payment that is added to the borrower's mortgage payment until the borrower has paid down the loan balance enough to reach the 20% threshold. At that point, the borrower may be able to request that the PMI policy be cancelled.

Public mortgage insurance, which is not the correct answer, is a type of mortgage insurance that is backed by the federal government. It is typically required for certain types of government-backed loans, such as FHA loans. However, it is not typically required for conventional loans.

The other two answer choices, down payment and loan-to-value ratio, are not types of insurance policies. The down payment is the amount of money that a borrower pays upfront when purchasing a property, and the loan-to-value ratio is a calculation that compares the amount of the loan to the value of the property. While both of these factors may impact whether or not a borrower is required to purchase PMI, they are not insurance policies themselves.