PMI: what it costs and how to get rid of it
Private mortgage insurance lets you buy a home with less than 20% down on a conventional loan — but it adds a monthly cost that protects the lender, not you. The good news is that, unlike FHA mortgage insurance in most cases, PMI doesn't last forever. Here's what it costs and exactly when it can come off.
What PMI is and when it's required
Private mortgage insurance (PMI) is a policy that pays the lender part of its loss if you stop paying and the home is sold for less than the loan balance. Lenders generally require it on conventional loans when your down payment is less than 20% of the home's value — in other words, when the loan-to-value ratio (LTV) is above 80%.
You pay the premium, but the coverage is for the lender. What you get in return is access: without PMI, many buyers would have to save for years longer to reach a 20% down payment.
How much PMI costs
PMI is priced as an annual percentage of the loan amount, usually collected monthly with your mortgage payment. Typical rates range from roughly 0.3% to 1.5% of the loan per year. Where you land depends mainly on:
- Your credit score — the biggest factor; higher scores get much cheaper PMI.
- Your down payment — 5% down costs more than 15% down.
- Loan details such as the term and whether the rate is fixed.
Example: a $400,000 home with 10% down means a $360,000 loan. At a PMI rate of 0.55% a year, PMI adds $165 a month on top of the $2,334.95 principal and interest payment (30-year fixed at 6.75%). With only 5% down, the loan would be $380,000 and a rate of 0.8% would mean about $253 a month.
When PMI comes off: the 80% and 78% rules
For most conventional loans on a primary residence, the federal Homeowners Protection Act sets three milestones, all measured against the home's original value (the lower of the purchase price or the appraised value when you got the loan):
- 80% — you can request cancellation. Once your balance reaches 80% of the original value, either on the original schedule or sooner through extra payments, you can ask your servicer in writing to cancel PMI. You'll generally need a good payment history, no second mortgage on the home, and possibly proof that the home hasn't lost value.
- 78% — it ends automatically. When your balance is scheduled to reach 78% of the original value, the servicer must end PMI automatically, as long as you're current on payments.
- Midpoint — final termination. If PMI is still in place at the halfway point of the loan term (year 15 on a 30-year loan), it must end then, provided you're current.
Continuing the example — $360,000 borrowed on a $400,000 home at 6.75% for 30 years:
| Milestone | Balance | Reached after | PMI paid by then |
|---|---|---|---|
| Request cancellation (80%) | $320,000 | Payment 98 (≈ 8.2 years) | $16,170 |
| Automatic termination (78%) | $312,000 | Payment 112 (≈ 9.3 years) | $18,480 |
Simply remembering to ask at 80% instead of waiting for 78% saves 14 months of PMI — about $2,300 in this example.
Ways to drop PMI sooner
- Make extra principal payments. In the example, paying an extra $200 a month brings the balance to $320,000 after about 66 payments — roughly 5.5 years instead of 8.2. Try your own numbers in the extra payment calculator.
- Use a new appraisal if your home has gained value. Rules are set by the loan investor, but for loans owned by Fannie Mae or Freddie Mac you can generally drop PMI based on the current value once the balance is at or below 75% of it (if the loan is 2–5 years old) or 80% (after 5 years). Ask your servicer for their exact requirements before paying for an appraisal.
- Refinance into a new loan at 80% LTV or below — worth it only if the rate and closing costs make sense on their own (see when to refinance).
FHA, VA and USDA loans work differently
| Loan type | Mortgage insurance | How long it lasts |
|---|---|---|
| Conventional | PMI, if less than 20% down | Cancelable at 80%, ends at 78% |
| FHA | Upfront premium (1.75% of the loan) plus an annual premium, 0.55% for most borrowers | 11 years with at least 10% down; otherwise for the life of the loan |
| VA | No monthly mortgage insurance; a one-time funding fee (some veterans are exempt) | — |
| USDA | Upfront guarantee fee plus an annual fee | For the life of the loan |
Because FHA mortgage insurance often can't be canceled, many FHA borrowers refinance into a conventional loan once they reach 20% equity.
Ways to pay PMI
- Monthly (borrower-paid): the most common option, and the only one that simply disappears when you hit the milestones above.
- Single premium: paid once at closing (by you or the seller). No monthly cost, but you don't get it back if you sell or refinance early.
- Lender-paid: the lender covers PMI in exchange for a higher interest rate — which stays for the life of the loan, even after you pass 20% equity.
PMI checklist
- Include PMI in your monthly budget (our calculator adds it automatically when you enter a rate).
- Ask lenders for PMI quotes at different down payments — sometimes 15% down costs far less than 10%.
- Note the date your loan is scheduled to reach 80% of the original value and set a reminder.
- Send a written cancellation request at 80% instead of waiting for automatic termination.
See PMI in your payment. Enter your down payment and PMI rate to see the full monthly cost.
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