What Is PMI, How Much Does It Cost, and How Do You Get Rid of It?

1. What PMI actually is, and what it is not

Private Mortgage Insurance is a policy that protects the lender if the borrower stops making payments and the home goes into foreclosure. When a borrower puts less than 20% down, the loan-to-value ratio is high enough that the lender faces real risk of loss if the home's value declines and the borrower defaults. PMI transfers that risk to an insurance company, and the borrower pays the premium.

This framing matters: PMI does not directly protect the borrower. If you default and lose your home, PMI pays the lender for its losses. The borrower may still lose the home, experience credit damage, and receive no direct payout from the policy. You are paying for a product that primarily exists for the lender's benefit. That does not make it avoidable for most buyers, but it is worth understanding clearly before you sign.

PMI exists because it enables something: lenders are willing to make loans at 95% or 97% loan-to-value that they would not make otherwise. Without PMI, some borrowers who cannot put 20% down may have fewer conventional mortgage options. In that sense, PMI is the price of admission to homeownership for buyers who have not yet accumulated a large down payment.

PMI is specific to Conventional loans. FHA loans have their own version called Mortgage Insurance Premium (MIP), which works differently and is generally more expensive over the long term. VA loans require no monthly mortgage insurance of any kind. See Section 6 for a direct comparison.

2. How much PMI costs, and what drives the price

PMI is priced as an annual percentage of the loan amount, typically between 0.5% and 1.5%, paid monthly as part of your mortgage payment. The exact rate is set by the PMI provider, not the lender, based on a risk model that weighs several factors:

• Credit score. This can be one of the largest drivers of PMI cost. A borrower with a 740+ score may pay 0.50% annually. A borrower with a 660 score on the same loan may pay 1.20%, potentially much higher. The lender submits your credit profile to the PMI company, which returns a rate quote similar to how auto insurance works.
• Loan-to-value ratio. The closer to 100% LTV, the higher the risk and therefore the higher the PMI rate. A 5% down loan (95% LTV) costs more in PMI than a 10% down loan (90% LTV), even at the same credit score.
• Loan type and term. Fixed-rate loans typically carry lower PMI rates than adjustable-rate mortgages. 30-year terms cost more than 15-year terms because the tail risk period is longer.
• Property type. Single-family primary residences are priced most favorably. Investment properties and multi-unit homes, if they qualify for PMI at all, pay higher rates.

PMI can be structured in three ways: monthly (most common, added to your payment each month), upfront single premium (a lump sum paid at closing, sometimes financed into the loan), or split premium (a partial upfront payment plus a reduced monthly). Most borrowers use the monthly structure because it requires no additional cash at closing.

3. Real numbers: $350,000 home, 5% down

On a $350,000 purchase with 5% down, the loan amount is $332,500. At 7.0% APR on a 30-year term, the monthly principal and interest payment is $2,212. Here is what PMI adds across three credit score tiers:

In this illustrative example, the difference between a 740 score and a 660 score is $194 per month, $2,328 per year, on the same loan. Over the 10+ years it may take to reach the PMI removal threshold without extra payments, that gap compounds into a significant real-dollar difference. A borrower who can raise their credit score from 680 to 740 before applying may reduce PMI cost materially, alongside shopping carefully for a competitive interest rate.

PMI rates shown are illustrative ranges based on common market pricing. Your actual rate will be determined by the PMI company underwriting your loan and may differ. Ask your lender for the exact PMI rate quote, it is a disclosed cost that must appear on your Loan Estimate.

4. How long you will pay it

PMI on a Conventional loan is tied to your loan-to-value ratio based on the home's original purchase price. The 80% LTV threshold, the point at which you can request cancellation, is calculated against what you paid for the home, not what it is worth today.

On the $350,000 / $332,500 loan example above, the 80% LTV threshold is $280,000 (80% of $350,000). Under normal amortization in this example at 7.0% APR with no extra payments, reaching that balance takes approximately 130 months, nearly 11 years. Here is how extra principal payments affect that timeline:

Adding $200/month to the mortgage payment cuts the PMI period from 10.8 years to 7.2 years and saves $10,363 in PMI premiums, well above the $17,280 spent in extra principal payments over that period, which also reduces total interest owed. Extra payments may serve double duty: they accelerate PMI removal and reduce the loan balance that generates interest.

Home appreciation is another variable and, in some scenarios, may accelerate PMI removal faster than extra payments. If the home appreciates and the LTV ratio drops below 80% of current market value, a new appraisal may allow you to request PMI removal far ahead of the amortization schedule:

The appreciation-based removal path requires a new appraisal (typically $400–$700) and lender approval. The lender must agree that the current value supports a below-80% LTV, they are not required to use any specific valuation method. Some lenders are more flexible than others. This path is most reliable in appreciating markets; in flat or declining markets, the amortization path may be the more predictable option.

5. Every legitimate way to remove PMI

Option 1, Automatic termination at 78% LTV

Under the Homeowners Protection Act (HPA) of 1998, lenders are required to automatically cancel PMI once the loan balance reaches 78% of the original purchase price, based on the original amortization schedule, not actual payments. This may happen without any action on your part, as long as you are current on payments. On the example above, automatic termination occurs around month 153 (12.8 years) at the scheduled pace.

Option 2, Request cancellation at 80% LTV

The HPA also generally gives borrowers the right to request PMI cancellation once the balance reaches 80% of the original purchase price. Borrowers generally must submit a written request to the servicer, have a good payment history (typically no payments more than 30 days late in the past 12 months), and meet any lender-specific requirements. The lender may require evidence that the home's value has not declined. This route lets you remove PMI several months before automatic termination.

Option 3, Appraisal-based removal using appreciation

If your home has appreciated significantly since purchase, you may be able to request PMI removal based on current market value rather than the original purchase price. This typically requires that the loan be at least 2 years old (some lenders require 5 years for full appreciation credit) and a new appraisal ordered by the lender showing the current LTV is at or below 80%. The lender controls this process, they are not legally required to grant it, but many will when the numbers clearly support it.

Option 4, Extra principal payments to accelerate 80% LTV

Any extra principal payment reduces the loan balance and accelerates the arrival of the 80% LTV threshold. A lump-sum payment, tax refund, bonus, inheritance, applied directly to principal can compress years of PMI into months. The basic math is straightforward: calculate how far your current balance is from 80% of the original purchase price, and pay that difference in a single extra payment. PMI removal may become available, subject to lender requirements.

Option 5, Refinance into a new loan

If the home has appreciated enough that a refinance would produce a loan at 80% LTV or below, refinancing eliminates PMI by replacing the existing loan with a new one that does not require it. Whether this makes financial sense depends on the new interest rate, closing costs, and how long you plan to stay. A refinance that drops PMI but raises the rate may not save money over the holding period.

Option 6, Lender-paid PMI (LPMI)

Some lenders offer to cover the PMI premium in exchange for a slightly higher interest rate, typically 0.25%–0.75% above the standard rate. The monthly payment may be similar, but the tradeoff is that the higher rate persists for the life of the loan, even after the point when regular PMI would have been canceled. LPMI can make sense for buyers who plan to sell or refinance within a few years before the higher rate becomes costly. Over a full 30-year term, LPMI almost always costs more than standard PMI.

6. PMI vs. FHA mortgage insurance, a critical difference

Many buyers compare Conventional loans with PMI to FHA loans without fully understanding that FHA's mortgage insurance works fundamentally differently, and is generally more expensive over time.

A key difference: conventional PMI can end. FHA MIP, for borrowers who put less than 10% down on a 30-year loan, may not. It runs for the full loan term unless you refinance. The flat-rate structure also means FHA does not reward borrowers with excellent credit the way Conventional PMI does, a 780-score borrower pays the same MIP as a 580-score borrower.

For a buyer with strong credit who is close to qualifying for conventional financing, the long-term cost difference between Conventional PMI (removable) and FHA MIP (permanent) may be substantial. The commonly cited rule is that FHA may make more sense below a 680 credit score; above that, conventional with PMI may be cheaper over the full holding period.

7. Is it worth putting 20% down just to avoid PMI?

This is the question many buyers with savings face: should I put 20% down to avoid PMI, or use a smaller down payment and keep cash available? The answer depends on factors specific to your situation, but the math is not as one-sided as the "always put 20% down" advice suggests.

Consider a buyer choosing between two options on a $350,000 home: 20% down ($70,000) with no PMI, or 5% down ($17,500) with PMI at 0.85%. The 20%-down option has a lower monthly payment ($1,597 P&I vs. $2,212) and no PMI. But it requires $52,500 more in cash upfront.

If that $52,500 were invested instead of put into a down payment, and if it earned 7% annually (a rough long-run stock market average), it would grow to approximately $100,000 in 10 years. The PMI cost over the same 10 years would be roughly $30,000 at 0.85%. The investment return on keeping that cash would exceed the PMI cost by roughly $70,000 over the decade, before tax considerations.

This calculation cuts the other way if investment returns are lower, PMI rates are higher, or if the buyer values the security of a lower monthly payment and more home equity from day one. There is no universal right answer. The relevant questions are:

• How long do you plan to stay in the home?
• What is your PMI rate given your credit score?
• What would you realistically do with the additional down payment money if you kept it?
• Does keeping cash reserves matter for your financial stability?
• Is the home in a market likely to appreciate, which would accelerate PMI removal?

The reflexive advice to "always put 20% down to avoid PMI" made more sense when mortgage rates were low and PMI rates were high. In high-rate environments, the opportunity cost of tying up capital in a down payment is lower, but so is the hurdle for alternative investments to beat PMI cost. Model your specific numbers rather than applying a blanket rule.

8. Frequently asked questions

What is PMI?

PMI, or private mortgage insurance, is insurance that protects the lender if a borrower defaults on a conventional mortgage. Borrowers usually pay the premium when the down payment is below 20 percent.

Does PMI protect the borrower?

PMI protects the lender, not the borrower. It may help borrowers qualify with a smaller down payment, but it does not pay benefits to the borrower.

When can PMI be removed?

Borrowers can generally request PMI cancellation on a conventional loan when the loan balance reaches 80 percent of the original property value, subject to payment history and lender requirements.

Is PMI the same as FHA mortgage insurance?

No. PMI applies to many conventional loans, while FHA loans use mortgage insurance premium, or MIP. FHA MIP follows different rules and may last longer depending on the loan terms.

Can home appreciation help remove PMI?

In some cases, home appreciation may help a borrower request PMI removal based on current value, but the lender may require seasoning, an appraisal, and other conditions.