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

Private mortgage insurance is insurance you pay for that protects someone else. If you default on your mortgage, PMI reimburses the lender's losses — you still lose the house, your credit still takes the hit, and none of the premiums come back to you. It exists so lenders can comfortably make loans with small down payments, which is genuinely useful; it just isn't a product you'd ever buy voluntarily. So the two questions that matter are what it costs and how fast you can make it go away.

When you have to pay it

On a conventional loan, PMI is required when your down payment is under 20% — that is, when the loan is more than 80% of the home's value (the loan-to-value ratio, or LTV). Put 20% down and the topic never comes up. Put 10% down and PMI is part of your monthly payment until your equity crosses the thresholds described below. It's not a penalty for being risky; it's the price of the lender's exposure on the slice of the home you haven't paid for yet. (VA loans, for eligible service members and veterans, skip monthly mortgage insurance entirely and charge an upfront funding fee instead — a different trade with its own math.)

What it costs

Typically somewhere between 0.5% and 1.5% of the loan amount per year, billed monthly. Where you land in that range depends mostly on your credit score and your LTV: strong credit and 15% down sits near the bottom; thinner credit and 3–5% down sits near the top. One honesty note about our own tools: our mortgage calculator estimates PMI at 0.5% a year, which is deliberately the low end of that range — treat its PMI line as a floor, not a quote. The width of the range is also one more reason to shop lenders: the interest rate gets all the attention, but two quotes with identical rates can carry noticeably different PMI premiums.

A worked example

Say you buy a $350,000 home with 10% down. That's $35,000 down and a $315,000 loan.

• At 0.5%: about $1,575 a year, or $131 a month.
• At 1.0%: about $3,150 a year, or $263 a month.
• At 1.5%: about $4,725 a year, or $394 a month.

So the same loan costs one borrower $131 a month in PMI and another nearly $400, depending on credit and down payment — roughly a $1,600 to $4,700 annual spread. That's a real line item, but note what it isn't: it isn't permanent, and it isn't the biggest number on the payment. Keep that in mind for the "should I wait to avoid it" question below.

How to get rid of it

For conventional loans, the federal Homeowners Protection Act — the CFPB is the plain-English source on it — gives you actual rights here, not favors:

• Request cancellation at 80% LTV. Once your balance falls to 80% of the home's original value (the purchase price or original appraisal), you can ask your servicer in writing to cancel PMI. You'll generally need a good payment history and no other liens on the home.
• Automatic termination at 78% LTV. When the balance is scheduled to hit 78% of original value, the servicer must cancel PMI on its own, as long as you're current. This is the backstop for people who never send the letter — but why pay extra months waiting for it?
• The appreciation shortcut. The 80/78 thresholds use the original value, but if your home has appreciated, many servicers will cancel based on a new appraisal showing you've crossed their current-value threshold — often after a couple of years of ownership. This is investor policy rather than the law, so the rules vary; the appraisal costs a few hundred dollars, which pays for itself fast if it kills a $200 monthly premium.

The practical takeaway: put a reminder on your amortization schedule for the 80% date, and check your home's value annually in the meantime. Nobody at the servicer is racing to cancel your PMI for you. Extra principal payments pull the 80% date closer, too — our extra payment calculator shows how much a given overpayment accelerates the schedule, and retiring a monthly premium early is one of the few guaranteed returns in personal finance.

FHA loans are a different animal

FHA loans don't have PMI — they have MIP, mortgage insurance premium, with an upfront charge plus an annual one, under HUD's rules rather than the Homeowners Protection Act. The part that surprises people: on most FHA loans with a small down payment, MIP lasts the life of the loan. No 78% threshold, no cancellation letter. The common exit is refinancing into a conventional loan once you've built about 20% equity — our refinance calculator will tell you whether the switch actually pays for its closing costs.

Is avoiding PMI worth it?

Here's the take you won't get from either the "never pay PMI" camp or the lender's brochure: PMI is a fee, not a moral failing, and sometimes paying it is the cheaper path. If saving a full 20% would take you three or four more years, you're not comparing "PMI vs. no PMI" — you're comparing PMI against three or four more years of rent, plus whatever home prices do in the meantime. A $131-a-month premium that lets you start building equity now can easily beat a 20% down payment on a house that costs $40,000 more by the time you've saved for it. It can also lose — in a flat market, with expensive PMI, waiting wins. The point is that it's an arithmetic problem, not a principle. Run your actual numbers through the mortgage calculator both ways before deciding.

PMI protects the lender and costs you money — both true. But "never pay it" is a slogan, not a strategy. The right question is what the alternative costs.

Common questions

Is PMI tax-deductible?

It has been, off and on — the deduction has expired and been revived more than once as tax law changed, so any fixed answer here would eventually be wrong. Check the current rules for the tax year you're filing, or ask whoever does your taxes.

Does PMI protect me if I can't pay?

No. It pays the lender's claim after you default; you still face foreclosure and the credit damage. If you want protection for yourself, that's what an emergency fund is for.

Can I pay PMI upfront instead of monthly?

Yes — single-premium PMI pays it as a lump sum at closing, and lender-paid PMI buries it in a higher interest rate. Both trade a visible monthly line for a cost that can't be cancelled later, which is a worse deal the sooner you'd have hit 80% LTV. Get quotes on the actual numbers before choosing.

What's an 80-10-10 loan?

A "piggyback": an 80% first mortgage, a 10% second loan, and 10% down — the first mortgage stays at 80% LTV, so no PMI. Whether it wins depends on the second loan's rate versus the PMI it avoids. Sometimes it does; run both totals rather than assuming.

This article is general information, not personalized financial advice. How we write and review articles is covered in the editorial note on our About page.