PMI: What It Costs and How to Get Rid of It

Private mortgage insurance (PMI) is required on most conventional loans when your down payment is less than 20% of the home's value. It protects the lender — not you — if you stop making payments. Despite that, the cost is added to YOUR monthly bill, typically as part of your escrowed PITI payment.

PMI is different from homeowners insurance, which protects your property. PMI purely covers the lender's risk. That is why removing it as soon as you qualify is one of the highest-return moves a homeowner can make.

PMI typically costs 0.3% to 1.5% of the loan amount per year, depending on your down payment size and credit score. On a $400,000 loan with 10% down and good credit, expect roughly $150–$250 per month. With only 3–5% down or a lower credit score, it can exceed $300 per month.

The rate is set by the insurer based on risk: bigger down payments and higher credit scores mean lower PMI. Improving your credit score before you apply can cut your PMI rate meaningfully — another reason to check your credit months before house hunting.

FHA loans have their own version: an upfront mortgage insurance premium (1.75% of the loan, usually rolled into the balance) plus an annual premium of about 0.55% paid monthly. Unlike conventional PMI, FHA annual insurance often cannot be removed without refinancing — it lasts for the life of the loan if your down payment was under 10%.

This is a key reason conventional loans are usually cheaper than FHA once you have decent credit and at least 3–5% down. Compare both paths with our Mortgage Calculator before you commit.

1. Automatic termination: By law, lenders must cancel PMI when your balance falls to 78% of the original home value through scheduled payments — no action needed, though it can take many years.

2. Request cancellation at 80%: Once your loan balance reaches 80% of the original value (or current appraised value with lender approval), you can request cancellation in writing. You must be current on payments and may need to pay for a new appraisal ($300–$600) to prove the value.

3. Appreciation shortcut: If your home's value rises, you might hit 20% equity far sooner than the amortization schedule suggests. A $400,000 home that appraises at $480,000 with a $360,000 balance gives you 25% equity — request a cancellation.

4. Refinance: If rates have dropped or your value has jumped, refinancing into a new loan at 80% loan-to-value or less eliminates PMI entirely — and may lower your rate too.

The simplest avoidance is a 20% down payment, but that is not realistic for everyone. Alternatives include lender-paid mortgage insurance (a slightly higher rate instead of monthly PMI), piggyback loans (an 80-10-10 structure), or waiting and saving longer. Each has tradeoffs — run the total cost, not just the monthly payment.

Whatever path you choose, factor PMI into your full PITI payment when budgeting. A loan that looks affordable on principal and interest alone can become a stretch once PMI, taxes, and insurance are included.