What Is PMI? Private Mortgage Insurance Explained
How PMI works, what it costs, and the three ways to remove it — plus how FHA mortgage insurance rules differ.
PMI is insurance that protects your lender when you put less than 20% down, typically costing 0.5–1.5% of the loan per year until you reach 20% equity.
What you'll walk away with
Skim these first — then dig into the details below.
- 1PMI protects the lender, not you, when your down payment is under 20%.
- 2Typical cost is 0.5–1.5% of the loan amount per year, added to your monthly payment.
- 3Lenders must cancel automatically at 78% LTV; you can request removal at 80%.
- 4FHA mortgage insurance often lasts the life of the loan — different rules entirely.
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PMI is the cost of buying with a smaller down payment. It adds a real monthly charge that buys you nothing except the ability to close sooner.
It is also temporary on conventional loans, which is why it is worth knowing exactly how to get rid of it.
How PMI works
The premium is based on your loan amount, loan-to-value ratio, and credit score.
- Charged monthly and bundled into your mortgage payment.
- Lower credit scores and higher loan-to-value ratios mean higher premiums.
- It does not pay off your mortgage if you default — it reimburses the lender.
- Single-premium and lender-paid options exist, but both have real trade-offs.
Three ways to remove it
On conventional loans, PMI has an expiration date you can accelerate.
- 1
Reach 80% loan-to-value and request removal in writing from your servicer.
- 2
Wait for 78% LTV based on the original amortization schedule, where cancellation is automatic.
- 3
Pay for a new appraisal if home values rose enough to put you under 80% early.
- 4
Refinance into a new loan without PMI — see when to refinance and the refinance calculator.
FHA insurance is different
FHA loans carry mortgage insurance premiums (MIP), which follow their own rules.
- There is an upfront premium at closing plus an annual premium paid monthly.
- With minimum down payments, MIP generally lasts the entire loan term.
- The usual escape is refinancing into a conventional loan once you have 20% equity.
- Factor that eventual refinance cost into whether FHA is really the cheaper path.
PMI vs waiting for 20%
Compare the total cost of both paths instead of treating PMI as automatically bad.
- Add up the PMI you would pay over the years it takes to reach 20% equity.
- Compare that to the rent you would pay while saving, plus any home price changes.
- PMI can be the cheaper option in a rising market and the worse one in a flat market.
- See down payment options for the full comparison.
Disclaimer: This page includes AI-assisted educational content reviewed for general accuracy. It is not personalized financial, tax, or legal advice. Verify numbers with a qualified professional and our editorial standards.
Continue reading
Related guides that deepen the same decision.
How Much Down Payment Do You Need To Buy a House?
You do not need 20% — conventional loans start near 3% and FHA at 3.5% — but 20% avoids PMI and gets the best pricing.
ReadReal EstateHow Much House Can I Afford? Rules, Ratios & Calculator
Keep total housing costs under about 28% of gross monthly income and all debt payments under 36%, then buy below your pre-approval ceiling so repairs and rate changes do not break your budget.
ReadReal EstateWhen To Refinance Your Mortgage: Rules, Math and Break-Even (2026)
Refinance when the rate drop saves enough monthly to recoup your closing costs before you plan to move — usually a 0.75–1% drop with a break-even under 2–3 years.
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