What PMI is and who pays it
Private mortgage insurance (PMI) is a policy your lender requires when you take out a conventional mortgage with less than 20% down. If you stop paying and the home is sold for less than you owe, PMI covers part of the lender's loss. You pay the premium, but the coverage protects the lender.
PMI is not the same as homeowners insurance, which protects your house and belongings, or mortgage protection life insurance. It is also different from the mortgage insurance on FHA loans, which follows its own rules and is covered further down.
Most borrowers pay PMI as a monthly charge added to the mortgage payment. Some lenders offer other setups, such as a single upfront premium or a slightly higher interest rate in place of a separate PMI charge (lender-paid PMI). Lender-paid PMI usually cannot be cancelled, because it is built into the rate for the life of the loan.
How much PMI costs
Freddie Mac estimates PMI at roughly $30 to $70 a month for every $100,000 you borrow. Your actual premium depends mainly on your credit score, your down payment and the loan type, so two buyers of the same house can get very different quotes.
Example: PMI on a $350,000 home
You buy a $350,000 home with 10% down, so you borrow $315,000. At $30 to $70 per $100,000, PMI would run about $94.50 to $220.50 a month. On a 30-year loan at 6.5%, principal and interest alone come to $1,991.01, so PMI adds roughly 5% to 11% on top of that.
Your Loan Estimate shows the exact monthly mortgage insurance figure. If you are comparing lenders, compare that line too, not only the interest rate.
When PMI goes away: the 80% and 78% rules
The Homeowners Protection Act gives most borrowers with conventional loans on a single-family primary home (closed on or after July 29, 1999) three ways out of PMI. All three are measured against the home's original value, which is the lower of the purchase price or the appraisal at the time you bought.
| Rule | When it applies | Do you have to ask? |
|---|---|---|
| Request cancellation | Balance reaches 80% of original value (on schedule or through extra payments) | Yes, in writing |
| Automatic termination | Balance is scheduled to reach 78% of original value | No, if you are current |
| Final termination | Midpoint of the loan term, such as year 15 of a 30-year loan | No, if you are current |
To have PMI cancelled at 80%, the CFPB says you generally need a good payment history, must be current on the loan, may need to certify there are no second liens on the home, and may need to show the home has not lost value, often with an appraisal.
How long it takes, with and without extra payments
Staying with the $315,000 loan on a $350,000 home, 80% of the original value is $280,000 and 78% is $273,000. Here is how long the balance takes to get there.
| Payment plan | Reach 80% ($280,000) | Reach 78% ($273,000) |
|---|---|---|
| Regular payments only | Month 95 (about 7 years 11 months) | Month 109 (about 9 years 1 month) |
| Extra $200 a month toward principal | Month 62 (about 5 years 2 months) | Month 72 |
Two details matter here. First, automatic termination at 78% follows the original amortization schedule, so extra payments do not move that date forward. You have to ask in writing at 80% to benefit from paying early. Second, if your home has risen in value, some servicers will drop PMI based on a new appraisal under their own investor guidelines, which may be more generous than the law requires. Ask your servicer what they allow.
FHA loans work differently
The PMI rules above do not apply to FHA loans. FHA loans carry their own mortgage insurance premium (MIP), with an upfront charge and an annual premium, and for many borrowers it lasts much longer or for the life of the loan. The usual way out is to refinance into a conventional loan once you have enough equity. VA loans have no monthly mortgage insurance but do charge a funding fee for most borrowers.
Ways to avoid or shorten PMI
- Put 20% down. This avoids PMI on a conventional loan entirely, though it may not be the right trade if it drains your emergency savings.
- Pay extra principal. Even modest extra payments can bring the 80% date years closer, as the example shows.
- Track your 80% date. Your PMI disclosure lists it. Put a reminder on your calendar and send the written request on time.
- Watch your home's value. If prices in your area rise, ask whether a new appraisal could get PMI removed sooner.
- Compare quotes. PMI pricing varies by lender and insurer, and a better credit score can lower it.
PMI is not always a bad deal. It lets you buy sooner with less cash. The key is knowing what it costs and planning when it will end.