Private Mortgage Insurance (PMI): Cost and How to Remove It

Private mortgage insurance (PMI) is a monthly cost lenders usually add to a conventional loan when you put down less than 20%, and it protects the lender, not you. Under federal law you can ask to cancel it once your balance reaches 80% of your home’s original value, and your servicer must end it automatically when the balance is scheduled to reach 78%.

Below: how PMI is charged, the exact cancellation rules, how FHA mortgage insurance is different, and a worked timeline for a typical loan.

What PMI is and who it protects

The Consumer Financial Protection Bureau (CFPB) describes PMI as insurance arranged by your lender and provided by a private company. It pays the lender if you stop paying. It does not protect you: if you fall behind, you can still lose your home to foreclosure. Lenders usually require it on conventional loans when the down payment is under 20%, and on conventional refinances when your equity is under 20%.

How you pay for it

• Monthly premium, the most common. It appears in the Projected Payments table on page 1 of your Loan Estimate and Closing Disclosure.
• Upfront premium, paid once at closing (page 2, section B). You might not get any of it back if you sell or refinance.
• Both, a smaller upfront payment plus a monthly premium.

The price depends mainly on your credit score and down payment. Ask lenders to quote PMI separately so you can compare offers, or estimate it with the PMI calculator.

Your rights to remove PMI

These rules come from the federal Homeowners Protection Act. They apply to loans on single-family principal residences that closed on or after July 29, 1999. They do not apply to FHA or VA loans, which have their own rules, and lender-paid PMI follows different rules.

1. Ask to cancel at 80%

You can send your servicer a written request once your principal balance reaches 80% of the original value. The servicer must cancel PMI if you:

1. 1

   Put the request in writing

   Send it to your loan servicer, the company you pay each month.
2. 2

   Have a good payment history and are current

   Late payments can delay cancellation.
3. 3

   Have no junior liens

   You may need to certify there is no second mortgage or home equity line on the property.
4. 4

   Show the value hasn’t dropped

   The servicer can ask for evidence, such as an appraisal, that the home is worth at least its original value.

You can reach 80% sooner by making extra principal payments, and then ask early. “Original value” means the lower of the purchase price or the appraised value when you bought. If you refinanced, it is the appraised value at the refinance.

2. Automatic termination at 78%

Your servicer must end PMI automatically on the date your balance is scheduled to reach 78% of the original value, as long as you are current. The date comes from your original amortization schedule, so extra payments do not move it. If you are behind on that date, PMI ends shortly after you catch up.

3. Final termination at the midpoint

Even if the balance has not reached 78% (for example, on some loans with unusual payment terms), PMI must end the month after the midpoint of the amortization schedule. On a 30-year loan, that is after 15 years. You must be current.

Worked example: when PMI goes away

You buy a $500,000 condo with 10% down, so the loan is $450,000 at an assumed 6.5% for 30 years (principal and interest about $2,844 a month). Your original value is $500,000, so 80% is $400,000 and 78% is $390,000. Assume PMI costs 0.5% of the original loan a year, about $188 a month.

1. Month 1

   Loan closes at 90% LTV

   PMI starts at about $188 a month.

2. Month 61

   80% with $300 extra a month

   If you add $300 to principal every month, the balance falls below $400,000 here, about year 5. You can request cancellation.

3. Month 95

   80% on the regular schedule

   Without extra payments, the balance reaches $400,000 around year 8. You can request cancellation.

4. Month 109

   Automatic termination at 78%

   The servicer must drop PMI around year 9 if you are current, even if you never ask.

5. Month 181

   Midpoint backstop

   Not reached here, because the 78% date comes first.

Asking at 80% instead of waiting saves about 14 months of premiums, roughly $2,600 in this example. Mark the 80% month on your calendar, because that option only starts when you ask. Model your own loan with the extra mortgage payment calculator.

PMI vs FHA mortgage insurance (MIP)

FHA loans use a government program instead of PMI. They carry an upfront mortgage insurance premium of 1.75% of the base loan amount and an annual premium paid monthly. For FHA case numbers endorsed on or after March 20, 2023, on a loan over 15 years with a base amount at or below $726,200, the annual rate is 0.50% to 0.55% depending on your down payment. How long it lasts depends on your starting loan-to-value:

VA loans have no PMI or monthly mortgage insurance premium. Most VA borrowers pay a one-time funding fee instead.

Other ways to get rid of PMI

• Refinance. If your home has gained value and your new loan is 80% or less of the new appraisal, the new loan may not need PMI. Weigh the closing costs with the refinance break-even calculator.
• Make a lump-sum payment. Paying the balance down to 80% lets you request cancellation right away.
• Avoid it at the start. Put 20% down, or compare whether a different loan type costs less overall. The CFPB notes that PMI rates vary with your down payment and credit score and are generally cheaper than FHA mortgage insurance for borrowers with good credit, while FHA insurance costs the same regardless of credit score.

Should you put down 20% just to avoid PMI?

Not always. PMI on a conventional loan is temporary, and keeping cash for reserves, repairs or a co-op board’s liquidity test can be worth more. Compare scenarios in how much down payment you need, and track your equity with the home equity calculator.

This guide is general information. Your loan documents and servicer control the details of your loan.