PMI

· 4 min read
Private mortgage insurance (PMI) is a monthly premium you pay to protect your lender — not you — if you default on a conventional mortgage…

Private mortgage insurance (PMI) is a monthly premium you pay to protect your lender — not you — if you default on a conventional mortgage with less than 20% down. It’s the price of admission for buying a home without a full 20% down payment, and it adds $100-$400/month to most borrowers’ housing costs.

How PMI Works

When you put less than 20% down on a conventional loan, the lender sees improved risk. PMI covers a portion of the lender’s losses if you default. The premium is based on your loan-to-value ratio, credit score, and loan type. Better credit and lower LTV = cheaper PMI.

PMI can be paid monthly (most common), as a single upfront premium at closing, or as a lender-paid premium baked into a slightly higher interest rate. Each method has different math depending on how long you’ll keep the loan.

The Cost Impact

PMI rates typically range from 0.30% to 1.50% of the loan amount annually. On a $350,000 loan:

  • Good credit (740+), 10% down: ~0.40% = $1,400/year = $117/month
  • Average credit (680), 5% down: ~0.85% = $2,975/year = $248/month
  • Lower credit (660), 3% down: ~1.30% = $4,550/year = $379/month

At the high end, PMI adds nearly $400/month. That’s significant. Over 5 years, the 660-credit borrower pays $22,750 in PMI before building enough equity to drop it.

How to Get Rid of PMI

This is the good news: PMI on conventional loans is temporary. You have two paths to removal:

Automatic termination: Your servicer must cancel PMI when your loan balance hits 78% of the original value (based on the amortization schedule). This happens automatically — no request needed.

Borrower-requested cancellation: Once you hit 80% LTV — either through payments or home appreciation — you can request cancellation. If using appreciation, the servicer will likely require a new appraisal ($400-$600). You must be current on payments with a clean payment history.

PMI Alternatives

Don’t want to pay PMI? Options include:

  • Piggyback loan (80/10/10): 80% first mortgage + 10% second mortgage + 10% down. No PMI, but you have two loan payments.
  • Lender-paid PMI (LPMI): The lender pays PMI in exchange for a higher rate (typically 0.25-0.50% more). The catch: you can’t cancel it since it’s built into the rate. Only makes sense if you’ll refinance soon.
  • VA loan: No PMI ever, regardless of down payment. For eligible veterans and service members only.

To see how PMI stacks up against FHA mortgage insurance, check our PMI vs. MIP comparison.

Real-World Example

You buy a $380,000 home with 10% down ($38,000), borrowing $342,000. Your PMI rate is 0.55% annually, which adds $157/month to your payment. Over the roughly 7 years it takes to reach 80% LTV through regular payments, you will pay about $13,200 in PMI. If the home appreciates 3% per year, you might reach 80% LTV in 4 years instead, saving roughly $5,600. Some lenders offer lender-paid PMI (LPMI) where they raise your rate by 0.25% instead of charging a separate PMI premium — this can save money if you plan to keep the loan long-term since the rate increase never goes away.

Run the Numbers

Use our mortgage calculator to see how PMI (private mortgage insurance) applies to your specific situation. Plug in your numbers and compare scenarios before making any financial commitments.

Related Terms

Understanding PMI (private mortgage insurance) connects to several other concepts: Down Payment, LTV, Conventional Loan, and FHA Loan. Each of these terms interacts with PMI (private mortgage insurance) in ways that affect your buying power, monthly costs, or investment returns.

Frequently Asked Questions

Is PMI tax-deductible?

It has been in the past, but the deduction has expired and been renewed multiple times by Congress. Check current tax law or consult a tax professional. Even when deductible, the benefit phases out for adjusted gross incomes above $100,000. Don’t factor the deduction into your affordability calculations — use our mortgage calculator with the full PMI amount.

How is PMI different from FHA mortgage insurance?

PMI applies to conventional loans and can be cancelled at 80% LTV. FHA mortgage insurance (MIP) applies to FHA loans and lasts the entire loan term if you put less than 10% down. FHA’s upfront MIP (1.75%) plus ongoing MIP (0.55%/year) is often more expensive long-term than PMI on a conventional loan. Compare both on our loan comparison tool.

How do I get rid of PMI?

PMI automatically terminates at 78% LTV based on the original amortization schedule. You can request early removal at 80% LTV, which may require an appraisal proving your home’s current value. Some borrowers accelerate PMI removal by making extra principal payments or getting a new appraisal after significant home improvements or market appreciation.

Is PMI the same as FHA mortgage insurance?

No. PMI applies to conventional loans and can be cancelled once you reach 20% equity. FHA mortgage insurance premium (MIP) is required on all FHA loans and lasts the life of the loan if you put less than 10% down. FHA MIP includes both an upfront premium (1.75% of the loan) and an annual premium (0.55% for most borrowers).