Private Mortgage Insurance is one of the most misunderstood costs in homeownership. Many buyers don't realize they're paying it. Others know the number but don't know how to get rid of it. PMI typically adds $100–$400 per month to your housing cost — for insurance that protects your lender, not you. Here's everything you need to know.
What PMI Is and Why It Exists
PMI is insurance your lender requires when you put less than 20% down on a conventional mortgage. If you default, PMI reimburses the lender for a portion of the loss. It does not protect you in any way — it protects the bank.
From the lender's perspective, loans with less than 20% down have statistically higher default rates. PMI compensates for that risk. From your perspective, it's a toll you pay until you have enough equity.
How Much PMI Costs
PMI rates typically range from 0.2% to 1.5% of the original loan amount per year, depending on your credit score, loan-to-value ratio, loan type, and lender. The rate is set at closing and doesn't change as your balance decreases.
| Credit Score | LTV | PMI Rate (est.) | Monthly (on $350k loan) |
|---|---|---|---|
| 760+ | 90% (10% down) | 0.3–0.5% | $88–$146 |
| 720–759 | 90% | 0.5–0.7% | $146–$204 |
| 680–719 | 90% | 0.7–1.0% | $204–$292 |
| 760+ | 95% (5% down) | 0.5–0.8% | $146–$233 |
| 680–719 | 95% | 1.0–1.5% | $292–$438 |
Three Ways PMI Goes Away
- Automatic cancellation at 78% LTV: Federal law (Homeowners Protection Act) requires lenders to automatically cancel PMI when your loan balance reaches 78% of the original purchase price — based on the amortization schedule, not market value.
- Request cancellation at 80% LTV: You can request cancellation when you reach 80% LTV. The lender may require a new appraisal, a good payment history, and no second mortgages.
- Refinance out of PMI: If your home has appreciated to where your current balance is below 80% of market value, refinancing can eliminate PMI entirely — especially if rates are favorable.
How to Reach 80% LTV Faster
- Extra principal payments: every dollar paid directly reduces your balance and moves you closer to 80% LTV.
- Home improvements: if you add value through renovations, you may reach 80% LTV faster on an appraisal.
- Market appreciation: rising home prices increase your equity even without extra payments. Request an appraisal if your neighborhood has appreciated significantly.
- Lump-sum payments: applying a tax refund or bonus to principal can accelerate PMI removal by months or years.
Lender-Paid PMI (LPMI)
Some lenders offer lender-paid PMI — they cover the PMI cost in exchange for a higher interest rate (typically 0.25–0.75% higher). This eliminates the monthly PMI line item, but you pay through a permanently higher rate for the life of the loan.
LPMI makes sense if you plan to sell or refinance within a few years — before the rate premium accumulates to more than the PMI would have cost. For long-term holders, borrower-paid PMI is usually cheaper.
FHA MIP vs Conventional PMI
FHA loans charge MIP (Mortgage Insurance Premium), not PMI. For loans with less than 10% down, MIP lasts the LIFE of the loan — it never cancels automatically. This is a major reason to prefer conventional loans when you qualify: conventional PMI goes away, FHA MIP often doesn't.
PMI is not inherently bad — it's the cost of accessing homeownership with less than 20% down. But knowing exactly when it cancels and how to accelerate that timeline can save you thousands. Use the Mortgage Calculator to model your PMI timeline, see when you'll hit 80% LTV, and calculate how extra payments shorten that date.
