What Is PMI? Private Mortgage Insurance and How to Remove It

Private mortgage insurance, or PMI, is insurance you pay for that protects your lender, not you, if you stop making payments on a conventional loan. Lenders typically require PMI when your down payment is less than 20 percent of the home's value, and it commonly costs between 0.3 and 1.5 percent of the loan amount per year, usually folded into your monthly payment. The key thing to know: PMI is temporary. Once you build enough equity you can request removal, and federal law requires it to end automatically at a set point even if you never ask. This guide walks through when PMI applies, what drives the cost, and the exact steps to cancel it.

What private mortgage insurance is and who it protects

PMI exists to solve a lender's problem, not yours. When a borrower puts down less than 20 percent, the lender is taking on more risk: if the borrower defaults and the home sells for less than the loan balance, the lender absorbs the loss. PMI transfers part of that risk to a private insurance company, which is why lenders will approve loans with smaller down payments at all.

That framing clears up the most common misunderstanding: PMI does not protect you, your family, or your home. If you fall behind, PMI does not cover your payments or prevent foreclosure. You pay the premium, but the lender is the beneficiary.

The honest upside is access. PMI lets you buy sooner with less cash upfront, in exchange for a monthly cost that goes away as your equity grows.

When lenders require PMI

On conventional loans, PMI is typically required whenever the loan-to-value ratio, or LTV, is above 80 percent. LTV is simply your loan amount divided by the home's value. Put 10 percent down and your LTV starts at 90 percent, so PMI applies; at 20 percent down it usually does not.

The same logic applies to refinancing. If your new loan is more than 80 percent of the home's current appraised value, it may carry PMI even if your old one did not.

PMI can be structured in a few ways:

• Borrower-paid monthly PMI is the most common. It is added to your monthly payment and can be canceled once you meet the equity requirements.
• Single-premium PMI is one upfront charge at closing, paid in cash or financed into the loan. There is no monthly cost, but the payment is generally not refundable if you sell or refinance early.
• Split-premium PMI combines a smaller upfront charge with a reduced monthly premium.
• Lender-paid PMI means the lender covers the insurance and charges you a higher interest rate instead. The cost is baked into the rate for the life of the loan and cannot be canceled without refinancing.

What determines your PMI premium

PMI is not one fixed price. Premiums vary with how risky the loan looks. The main drivers are:

• Your down payment and LTV. The less you put down, the higher the premium; a loan at 97 percent LTV typically prices higher than one at 85 percent.
• Your credit score. Credit is one of the biggest factors in PMI pricing, and the same loan can carry a meaningfully different premium for two borrowers with different scores. If you are working on your profile before applying, see how your credit score affects your mortgage rate, because the same improvements tend to help both numbers.
• Loan type and term. Adjustable-rate loans and longer terms generally price higher than a comparable fixed-rate loan.
• Occupancy and property type. A primary residence usually prices better than a second home or investment property.
• Debt-to-income ratio and other risk factors. Higher DTI and certain loan features can each nudge the premium up.

Because several private insurers compete and lenders work with different ones, two lenders can quote different PMI costs for the same borrower and loan. That makes PMI one more line item worth comparing across offers.

PMI vs FHA mortgage insurance

PMI applies to conventional loans. FHA loans carry their own version, called a mortgage insurance premium, or MIP, and the differences matter.

FHA loans charge an upfront MIP, typically 1.75 percent of the loan amount, plus an annual MIP paid monthly. The bigger difference is duration. On most FHA loans with less than 10 percent down, MIP lasts for the life of the loan and can only be removed by refinancing out of the FHA program. With 10 percent or more down, it still runs for 11 years. Conventional PMI, by contrast, can be canceled once you build equity and must terminate automatically at a defined point.

Neither option is universally better. FHA pricing does not vary with credit score the way PMI does, so borrowers with lower scores sometimes find the FHA route cheaper despite the longer insurance period, while borrowers with strong credit often do better on a conventional loan with a low, removable PMI premium. The only way to know for your situation is to compare real offers of each type side by side.

Ways to reduce or avoid PMI with less than 20 percent down

Putting 20 percent down is the direct route around PMI, but it is not the only one. Each alternative has trade-offs.

• Lender-paid PMI. You accept a higher interest rate and skip the monthly premium. This can look attractive, but the higher rate lasts the full life of the loan, while cancelable PMI does not. Comparing the A.P.R. of each structure helps you see the true cost side by side.
• A piggyback second loan. Some borrowers take a first mortgage at 80 percent LTV plus a smaller second loan covering part of the down payment, often called an 80-10-10. This avoids PMI but adds a second payment, usually at a higher rate, with its own fees.
• Single-premium PMI. Paying the premium upfront removes the monthly cost, but you may not get that money back if you sell or refinance within a few years.
• VA eligibility. If you qualify for a VA loan, there is no monthly mortgage insurance at all, though most VA loans carry a one-time funding fee.
• Special lender programs. Some lenders offer low-down-payment conventional programs without monthly PMI, typically pricing the risk into the rate instead. The cost has moved, not disappeared, so look at the whole offer.

One more option deserves a fair hearing: accepting PMI. If buying now with 10 percent down and a modest, cancelable premium beats renting for years while you save, PMI can be a reasonable price for the head start. The math depends on your market, your timeline, and the quotes in front of you, which is why it pays to compare full lender offers, not just the rate.

This is also where getting lenders to compete works in your favor. On HomeTurf, verified lenders bid for your loan in a reverse auction, and because PMI pricing, rates, and fee structures all vary by lender, the offers you gather can differ on exactly these line items. Lenders cannot pay for placement, you stay anonymous until you pick a winner, and you can weigh a lender-paid PMI offer against a monthly PMI offer on equal footing. When you are ready to gather competing offers, you can Start Your Auction. HomeTurf is a technology marketplace, not a lender, and it is now in beta: free for borrowers, and free for lenders during beta.

How to cancel PMI once you build equity

For borrower-paid monthly PMI on a conventional loan, the federal Homeowners Protection Act gives you specific rights. There are three paths; the first two run on your original amortization schedule and the home's original value.

1. Request cancellation at 80 percent LTV. Once your balance reaches 80 percent of the home's original value, you can ask your servicer in writing to cancel PMI. You generally need to be current with a good payment history and no other liens on the property. The servicer may require evidence, such as an appraisal, that the value has not declined.
2. Automatic termination at 78 percent LTV. Even if you never ask, PMI must terminate automatically when your balance is scheduled to hit 78 percent of the original value, as long as you are current on payments.
3. Final termination at the loan midpoint. If neither of the above has happened, PMI must end at the halfway point of your loan term, for example year 15 of a 30-year loan, provided you are current.

You may get there faster than the schedule suggests. Extra principal payments shrink your balance ahead of plan, and appreciation or documented improvements can raise your home's current value. Many servicers will cancel PMI based on current value after a new appraisal, though investor rules often require the loan to be seasoned, commonly two to five years, and may set a lower threshold such as 75 percent LTV for newer loans. Ask your servicer for their written cancellation requirements before paying for an appraisal.

Refinancing is the other route: if a new loan would sit at or below 80 percent LTV, it can eliminate PMI, but only run that play if the new rate and closing costs make sense on their own.

Frequently asked questions

How much is PMI on a mortgage?

PMI typically costs between 0.3 and 1.5 percent of the original loan amount per year, divided into monthly payments. The exact premium depends on your down payment, credit score, loan term, and other risk factors, and it varies between insurers and lenders, so the same borrower can see different PMI costs on competing offers.

How can I avoid PMI without 20% down?

Common options include lender-paid PMI, where the cost moves into a higher interest rate, a piggyback second loan that keeps the first mortgage at 80 percent LTV, single-premium PMI paid upfront, or a VA loan if you are eligible. Each shifts the cost rather than erasing it, so compare the full price of each structure over the time you expect to keep the loan.

When does PMI automatically go away?

Under the Homeowners Protection Act, borrower-paid PMI on a conventional loan must terminate automatically when your balance is scheduled to reach 78 percent of the home's original value, as long as you are current on payments. If that never happens, it must end at the midpoint of the loan term. You can also request cancellation earlier, once your balance reaches 80 percent of the original value.

Does PMI ever apply to FHA loans?

No. FHA loans carry their own mortgage insurance, called MIP, which includes an upfront premium and an annual premium paid monthly. On most FHA loans with less than 10 percent down, MIP lasts for the life of the loan, so refinancing into a conventional loan is typically the only way to remove it.

HomeTurf is a technology marketplace, not a lender or loan originator. This content is for general information only and is not financial or legal advice. Now in beta.