What PMI Is — and What It Isn't
Private Mortgage Insurance (PMI) is insurance you pay as the borrower that protects the lender — not you — if you default on your mortgage. If foreclosure occurs, PMI helps the lender recover some of its loss.
This distinction matters: PMI provides you no direct benefit. It's not homeowners insurance, which protects your property. It's not life insurance. It's purely a cost that allows lenders to extend mortgages to buyers who haven't yet built significant equity in a property.
Why lenders require it
When you put down less than 20%, the lender is financing more than 80% of a property they could lose access to if you stop paying. With less equity as a buffer, their risk is higher. PMI offsets that risk — which is what allows lenders to offer mortgages to first-time buyers and others who haven't yet saved a full 20%.
When PMI Is Required
requirements apply to conventional loans. The rule is straightforward:
| Down Payment | PMI Required? |
|---|---|
| Less than 20% | Yes — required for conventional loans |
| Exactly 20% | No PMI |
| More than 20% | No PMI |
Note: FHA loans have their own mortgage insurance called MIP (Mortgage Insurance Premium), which works differently from PMI. That's covered in its own section below.
How Much PMI Costs
is calculated as a percentage of your original loan amount and billed annually, but collected monthly as part of your . The typical range is 0.2%–2% per year, with most buyers with solid credit falling between 0.3%–0.8%.
What drives your specific rate:
Credit score
Higher score → lower PMI rate
Down payment
More down → lower PMI rate
Loan amount
Larger loan → higher total PMI cost
Loan term
15-year loans often have lower PMI
Property type
Primary residence vs. investment
LTV ratio
Loan-to-value at the time of purchase
Example calculation
How PMI Appears in Your Monthly Payment
is almost always added to your monthly and collected by the lender. Here's what a full monthly payment breakdown might look like with included:
Example: $400,000 home, 5% down, 7% rate, 30-year term
Without PMI (20% down), the same home's monthly payment would drop by $158 — and the loan would also be smaller, reducing the P&I as well.
Some lenders offer alternatives: single-premium PMI (you pay it upfront at closing), lender-paid PMI (lender absorbs the cost in exchange for a higher interest rate), or split-premium PMI (part upfront, part monthly). Ask your lender to walk through the options for your situation.
How to Remove PMI
This is one of the best parts about on conventional loans: it isn't permanent. There are two ways to eliminate it.
Automatic removal at 78% LTV
By law (the Homeowners Protection Act), your lender must automatically cancel PMI when your loan balance reaches 78% of the original purchase price — as long as you're current on payments. This happens through your regular monthly payments paying down principal over time.
Request removal at 80% LTV
You can request PMI cancellation once your loan balance drops to 80% of the home's original value — before the automatic removal at 78%. You'll typically need a good payment history, no junior liens on the property, and in some cases a new appraisal. Contact your lender or servicer to start the request.
Appreciation can accelerate removal
If your home's value increases significantly, your equity may reach 20% faster than your amortization schedule suggests. In this case, you can request a new appraisal and ask the lender to remove PMI based on the current appraised value rather than the original purchase price. Lenders set their own policies on this — typically requiring 2 years of payments minimum — so check with your servicer.
Track your progress
When you receive your annual mortgage statement or access your servicer's online portal, you can typically see your current loan balance and LTV ratio. Set a reminder to check when you estimate you're approaching 80% LTV — being proactive about requesting removal saves you months of unnecessary PMI payments.
FHA Mortgage Insurance vs. Conventional PMI
FHA loans have their own insurance program called (), which functions differently from conventional PMI. This distinction matters when comparing loan types.
| Conventional PMI | FHA MIP | |
|---|---|---|
| Upfront cost | None | 1.75% of loan amount at closing |
| Monthly cost | Varies by score & LTV | Annual rate divided monthly |
| Can be removed? | Yes — at 80% LTV | Only if >10% down + 11 years; otherwise, life of loan |
| Affected by credit score? | Yes — better score = lower PMI | Less variation |
The FHA MIP consideration
If you put down less than 10% on an FHA loan, MIP typically lasts for the life of the loan — meaning you'll pay it even after you've built significant equity. Many FHA buyers eventually refinance to a conventional loan once their credit and equity improve specifically to eliminate MIP. Your mortgage lender can help you model which option is better for your specific situation.
Is PMI a Bad Thing?
is a cost — not a punishment. For many buyers, paying for a few years is worth buying sooner rather than waiting years to save a 20% . The question worth asking is which scenario leaves you in a better financial position.
Wait to save 20%
- Continue paying rent while saving
- Miss potential home value appreciation
- Avoid PMI entirely
- Better mortgage terms at 20% down
Buy now with less than 20%
- Start building equity immediately
- Potentially benefit from appreciation
- Pay PMI for a defined period
- PMI goes away once equity reaches 20%
The right answer depends on your local market, how quickly home values are appreciating, your rent cost, and how many years it would realistically take to save 20%. Our Mortgage Calculator can help you compare these scenarios with real numbers.
Next Steps
Now that you understand PMI, two important topics to explore next are closing costs — the other significant upfront expense — and how to think about total affordability.
Understanding Closing Costs
What you'll pay at closing beyond your down payment, broken down fee by fee.
How Much House Can I Afford?
Build a complete monthly budget including PMI, taxes, insurance, and maintenance.
Understanding Mortgage Options
Compare conventional and FHA loans to understand which is right for your situation.