Understanding PMI
Private Mortgage Insurance adds to your monthly payment when you put less than 20% down. Learn what it costs, why it exists, and the fastest ways to eliminate it.
What Is PMI?
Private Mortgage Insurance (PMI) is an insurance policy that protects the lender — not you — against losses if you default on your loan. Despite the fact that you pay for it, PMI's sole beneficiary is the lender. If you stop making payments and the bank forecloses, PMI compensates the lender for losses on the sale.
PMI is required on conventional loans whenever your down payment is less than 20% of the home's purchase price — in other words, when your loan-to-value (LTV) ratio exceeds 80%. The logic is simple: lenders are more at risk when borrowers have less skin in the game.
Important distinction: PMI applies to conventional (non-government) loans. Government-backed loans have their own mortgage insurance products with different rules.
How Much Does PMI Cost?
PMI is priced as an annual percentage of the loan amount, typically charged monthly as part of your PITI payment. The rate depends on:
- Loan-to-value ratio: Higher LTV (smaller down payment) = higher PMI rate
- Credit score: Lower credit score = higher PMI rate
- Loan type: Fixed-rate vs. ARM affects PMI pricing
- Occupancy: Investment properties pay more than primary residences
PMI cost examples — $350,000 home, 30-year conventional loan
| 5% down ($17,500) — 95% LTV | ~$215–$350/month |
| 10% down ($35,000) — 90% LTV | ~$145–$230/month |
| 15% down ($52,500) — 85% LTV | ~$85–$140/month |
| 20% down ($70,000) — 80% LTV | $0 — No PMI required |
Use the PMI Calculator to estimate your specific monthly PMI cost based on your loan amount, down payment, and credit score.
Types of PMI
Borrower-Paid PMI (BPMI)
The most common type. You pay a monthly premium that is included in your mortgage payment. PMI is cancelable once you reach 20% equity. This is the default option for most conventional loans.
Lender-Paid PMI (LPMI)
The lender pays the PMI premium in exchange for a slightly higher interest rate — typically 0.25–0.5% higher. There is no separate monthly PMI charge, and your payment looks lower. But the higher rate is permanent for the life of the loan. You cannot "cancel" lender-paid PMI the way you can borrower-paid PMI — to get rid of it, you must refinance.
LPMI can make sense if you plan to sell or refinance within a few years, or if you expect to reach 20% equity quickly through appreciation.
Single-Premium PMI
You pay the entire expected PMI cost upfront at closing as a one-time premium (typically 1–3% of the loan amount). No monthly PMI charges, and if you sell the home after several years, the unused portion may be refundable. This works well if you have cash but cannot quite reach 20% down.
Split-Premium PMI
A hybrid: you pay a smaller upfront premium at closing plus a reduced monthly premium. Reduces the monthly cost without requiring as large an upfront payment as single-premium PMI.
How to Remove PMI
The Homeowners Protection Act (HPA) of 1998 gives borrowers specific rights to cancel PMI on conventional loans:
Automatic Cancellation (Required by Law)
When your loan balance reaches 78% of the original purchase price through scheduled payments, your lender is legally required to automatically cancel PMI — you do not need to request it. Note: this is based on the original purchase price, not current market value, and requires your payments to be current.
Borrower-Requested Cancellation at 80% LTV
You can request PMI cancellation once your loan balance reaches 80% of the original purchase price. You must: be current on payments, have a good payment history (no 30-day lates in the past year), and meet any additional lender requirements. The lender may request an appraisal to confirm no decline in value.
Cancellation Based on Appreciation
If your home's value has increased and you now have 20%+ equity based on current value (not original purchase price), you can request PMI removal with a new appraisal. Most lenders require you to have had the loan for at least 2 years before requesting value-based cancellation. Some require 5 years. Check your servicer's specific policy.
Refinancing Out of PMI
If you have 20%+ equity (either through paydown or appreciation), refinancing into a new conventional loan at 80% LTV or below eliminates PMI. You will incur refinancing closing costs, so do the math: compare the monthly PMI savings against the cost of refinancing and calculate your break-even point.
PMI removal timeline — $330,000 loan at 7%, 5% down on $347,368 home
| Loan-to-value at origination | 95% — PMI required |
| Reach 80% LTV via payments alone | Month 125 (year 10.4) |
| Automatic cancellation at 78% LTV | Month 148 (year 12.3) |
| Monthly PMI savings after removal | ~$165/month |
| Total PMI paid (to 80% LTV) | ~$24,750 |
PMI vs. FHA Mortgage Insurance (MIP)
FHA loans do not have PMI — they have Mortgage Insurance Premium (MIP). The differences are significant:
- Upfront MIP: FHA charges 1.75% of the loan amount at closing (can be rolled into the loan)
- Annual MIP: 0.15%–0.75% of the loan balance per year, paid monthly
- Duration: For most FHA loans with less than 10% down, MIP lasts the entire loan term — it cannot be removed without refinancing out of the FHA loan
- Removal option: If you put 10%+ down on an FHA loan, MIP drops off after 11 years
For buyers who qualify for both, this is a critical comparison — see the FHA vs Conventional guide for a full breakdown.
Alternatives to PMI with Less Than 20% Down
Piggyback Loan (80/10/10)
Take a first mortgage at 80% LTV, a second mortgage (home equity loan or HELOC) for 10%, and put 10% down. The first mortgage stays below 80% LTV — no PMI required. The second mortgage typically carries a higher rate than the first. This strategy works best when second mortgage rates are not too far above first mortgage rates.
VA Loans
For eligible veterans, active-duty service members, and surviving spouses, VA loans require no down payment and no PMI ever — regardless of LTV. A VA funding fee (1.25–3.3% of the loan amount) applies at closing, but it is often lower than years of PMI payments would be.
USDA Loans
For eligible rural and suburban areas. No down payment required and no PMI, though USDA has its own guarantee fee (1% upfront, 0.35% annually) that is lower than PMI or FHA MIP in most cases.