If you bought a home with less than 20% down, you have probably seen a line item called PMI on your mortgage statement. Private mortgage insurance is one of the most misunderstood costs in homeownership. Many borrowers pay it for years without knowing what it does, how much it really costs, or that they can get rid of it.
This guide explains everything in plain English: what PMI is, why lenders require it, how much it costs each month, and the exact steps to remove it from your mortgage.
What Is PMI in a Mortgage?
PMI stands for private mortgage insurance. It is an insurance policy that protects your lender, not you, if you stop making mortgage payments. When you put down less than 20% on a conventional mortgage, the lender takes on more risk, because there is less equity cushioning the loan. PMI covers part of the lender's loss if the home goes into foreclosure.
The key thing to understand is that PMI does not protect you as the borrower. It does not cover your payments if you lose your job, and it does not build any equity in your home. You pay the premium, but the lender is the beneficiary. That is exactly why most homeowners want to remove PMI as soon as they legally can.
PMI applies to conventional loans, which are the standard mortgages offered by banks, credit unions, and mortgage companies. Government-backed loans have their own versions: FHA loans have something called MIP (mortgage insurance premium), and USDA loans have a guarantee fee. VA loans have no monthly mortgage insurance at all, just a one-time funding fee. This article focuses on conventional PMI, but the general idea is similar across loan types.
It is usually collected as part of your monthly mortgage payment. Your loan servicer gathers the premium from you each month and passes it to the insurance company.
The Main Types of PMI
There are a few different ways PMI can be structured. Knowing which type you have matters, because it affects how and when you can get rid of it.
Borrower-paid monthly PMI. This is the most common type. You pay a monthly premium as part of your mortgage payment until you build enough equity to cancel it. This is the version most people mean when they say "PMI."
Single-premium or upfront PMI. With this option, you pay the entire PMI premium as one lump sum at closing. It can be paid in cash or sometimes rolled into the loan amount. The advantage is that your monthly payment stays lower. The downside is that you pay a large amount upfront, and depending on the policy, you may not get a refund if you sell or refinance early.
Lender-paid mortgage insurance (LPMI). Here the lender pays the PMI premium on your behalf. That sounds like a good deal, but it is not free: the lender charges you a slightly higher mortgage interest rate to cover the cost. Unlike borrower-paid PMI, LPMI cannot be cancelled when you reach 20% equity. The only way to remove it is to refinance into a new loan.
Split-premium PMI. This is a hybrid: you pay part of the premium upfront at closing and the rest as a smaller monthly amount. It can lower your monthly payment compared to standard monthly PMI.
If you are not sure which type you have, check your closing documents or ask your loan servicer. It makes a real difference to your removal options.
How Much Does PMI Cost?
PMI typically costs between 0.3% and 1.5% of your original loan amount per year, depending on your down payment and credit score. Most borrowers fall somewhere in the middle of that range.
Here is a simple example. Suppose you buy a $400,000 home with 10% down, so your loan amount is $360,000. If your PMI rate is 0.7% per year, that adds about $210 to your monthly mortgage payment.
A smaller down payment means a higher PMI rate, because the lender's risk is greater. Your credit score matters too: higher scores get lower PMI rates. To put it in perspective, PMI can add anywhere from roughly $50 to several hundred dollars to your monthly payment.
Keep in mind that PMI is separate from your homeowner's insurance. Homeowner's insurance protects your property against damage, and you will keep paying it for as long as you own the home. PMI is temporary and can be cancelled once you have enough equity.
When Do You Have to Pay PMI?
On a conventional mortgage, PMI is generally required when your down payment is less than 20% of the home's purchase price. In other words, if your loan-to-value ratio (LTV) is above 80% at closing, expect PMI.
A loan-to-value ratio is simply your loan amount divided by the home's value. A $360,000 loan on a $400,000 home is a 90% LTV, which means PMI applies. Once your loan balance drops to 80% of the home's original value through regular payments, you can usually request cancellation.
Some loan programs handle this differently. FHA loans require mortgage insurance regardless of down payment size, and it often lasts for the life of the loan unless you put 10% or more down. VA loans, available to eligible veterans and service members, do not charge monthly mortgage insurance at all. If you are comparing loan types, the total cost of mortgage insurance is an important part of the math.
How to Get Rid of PMI
This is the part most homeowners care about. There are several legitimate ways to remove PMI, and federal law is on your side.
Request cancellation at 20% equity. Under the federal Homeowners Protection Act, you have the right to request PMI cancellation once your loan balance reaches 80% of your home's original value. You must be current on your payments, and your lender may require proof that the home has not declined in value, sometimes through a new appraisal that you pay for. Contact your loan servicer in writing to start this process; it does not always happen automatically.
Automatic termination at 78%. Even if you never request it, your lender is required by law to automatically cancel PMI once your loan balance is scheduled to reach 78% of the original home value, as long as you are current on payments. This is based on your original amortization schedule, so extra principal payments that get you to 78% faster do not always trigger automatic cancellation early. Requesting cancellation at 80% is usually the faster route.
Refinance your mortgage. If your home has gone up in value, refinancing into a new loan can eliminate PMI in one step. For example, if you bought with 10% down but your home is now worth enough that your loan balance is under 80% of the current appraised value, a refinance can drop PMI entirely. This works best when interest rates are favorable, since refinancing also resets your rate and term.
Get a new appraisal. If home prices in your area have risen, your equity may be higher than your payment history suggests. Some servicers will accept a new appraisal showing your loan balance is at or below 80% of the home's current market value, and cancel PMI based on that. Rules vary by servicer and by how long you have had the loan, so ask what your servicer requires.
One important exception: if you have lender-paid PMI (LPMI), none of the cancellation options above apply. With LPMI, the higher interest rate is permanent for the life of that loan, and only a refinance can remove it.
Frequently Asked Questions
Is PMI tax deductible?
PMI deductibility has changed over the years depending on federal tax law, and it has been subject to income limits when allowed. Tax rules change, so check the current IRS guidance or ask a tax professional about the tax year in question.
Does PMI go toward my loan balance?
No. PMI premiums go to the insurance company, not toward your principal. Paying PMI does not reduce what you owe or build equity. Only your principal payments do that.
Can I remove PMI if my home value went up?
Often yes. If appreciation has pushed your loan balance to 80% or less of the home's current value, many servicers will cancel PMI based on a new appraisal. Check your servicer's specific rules, including any minimum time you must have held the loan.
How long does PMI usually last?
It depends on your down payment, whether you make extra principal payments, and whether your home appreciates. A borrower who puts 10% down and makes only minimum payments might pay PMI for several years, while someone who pays extra toward principal or benefits from rising home values can remove it much sooner.
This content is for general educational purposes only and is not professional financial advice.
