Private Mortgage Insurance (PMI) is required on conventional mortgages when the down payment is less than 20%. It protects the lender — not you — if the loan defaults, and it's added to your monthly payment as a separate line item.
PMI is not permanent. Federal law requires it to be canceled automatically once your loan balance reaches 78% of the home's original value, and you can request cancellation yourself once you reach 80%.
How it works
PMI premiums are typically charged as a percentage of the loan amount per year, split into monthly installments added to your mortgage payment. The exact premium depends on your credit score, down payment size, and loan type — a smaller down payment and lower credit score generally mean a higher PMI premium.
As you pay down the loan, your PMI requirement shrinks automatically. If home values in your area rise faster than your amortization schedule, you may be able to remove PMI earlier than scheduled by requesting a new appraisal that shows you've already crossed the 80% LTV line.
Some lenders offer lender-paid PMI, where the cost is built into a slightly higher rate instead of a separate monthly charge. That trades a visible monthly fee for a less visible one — always ask for both options quoted side by side.
When it matters to you
PMI matters most in the years right after closing, when it's typically the largest add-on to your payment beyond principal and interest. Knowing your cancellation date — or how to request an earlier one — can save you real money.
It matters again when comparing FHA to conventional financing: FHA's mortgage insurance (MIP) usually lasts for the life of the loan, while conventional PMI is designed to go away once you build enough equity.
Common mistakes
- Forgetting to request PMI cancellation at 80% LTV and letting the lender's automatic 78% cancellation be the only removal date, which costs extra months of premiums.
- Not asking whether a fast-appreciating market has already pushed you past 80% LTV sooner than your amortization schedule would suggest.
- Assuming PMI and homeowners insurance are the same thing — they protect completely different parties against completely different risks.
- Choosing lender-paid PMI for a slightly lower advertised monthly payment without realizing the higher rate behind it is permanent, unlike standard PMI which eventually ends.
FAQs
How do I get rid of PMI?
PMI cancels automatically at 78% of the original home value under federal law. You can request cancellation yourself once you reach 80% LTV — contact your servicer for their specific process, which may require a new appraisal.
Can I avoid PMI entirely?
Putting 20% or more down on a conventional loan avoids PMI from the start. Some loan structures and lender-paid PMI options can also avoid a separate monthly PMI line, though the cost typically shows up elsewhere in the rate.
Is PMI the same as homeowners insurance?
No. PMI protects the lender if you default on the loan. Homeowners insurance protects you and your home against damage, fire, and other hazards — you need homeowners insurance regardless of whether you also pay PMI.