Private Mortgage Insurance (PMI): What It Costs and How to Cancel It

If you buy a home with less than 20% down on a conventional loan, your lender will almost certainly add a line item called private mortgage insurance, or PMI. It can add anywhere from a few dozen to several hundred dollars to your monthly payment, and many buyers do not fully understand what it is, how long they will pay it, or how to get rid of it. This guide explains private mortgage insurance in plain terms: what it does, what it costs, the types you may be offered, your legal right to cancel it, and the strategies people use to avoid it.

The short version is that PMI is real money, but on a conventional loan it is temporary. The mistake to avoid is treating it as a permanent tax on your mortgage when, in most cases, it disappears once you build enough equity.

What private mortgage insurance is and why lenders require it

PMI is an insurance policy that pays your lender if you default and the foreclosure sale does not fully cover the outstanding loan. The key point that surprises many borrowers: you pay the premium, but the protection is for the lender, according to the Consumer Financial Protection Bureau.

Lenders require it because a smaller down payment means a riskier loan. When you put 20% down, the lender has a large equity cushion. If you default, they can usually sell the home and recover what they are owed. With only 3% to 10% down, that cushion is thin, so the lender offsets the added risk by requiring PMI. This is why the 20% threshold matters so much: at 20% down, you have a loan-to-value (LTV) ratio of 80%, and conventional lenders generally do not require PMI at or below that level.

PMI is a feature of conventional loans, the kind backed by Fannie Mae and Freddie Mac. Government-backed loans handle this differently, which we cover below.

How much PMI costs

PMI is usually quoted as an annual percentage of your loan amount, then divided into 12 monthly payments. According to the CFPB, annual PMI premiums commonly fall in a range of roughly 0.3% to 1.5% of the original loan balance, though specific figures vary by insurer and program.

Two factors move you within that range more than anything else:

• Credit score. Higher scores signal lower default risk and earn lower PMI rates. A borrower with a 760 score pays meaningfully less than one at 640 for the same loan.
• Down payment (your LTV). The smaller your down payment, the higher your PMI rate, because the lender's cushion is thinner.

Loan term, loan size, and whether it is a fixed or adjustable loan can also nudge the price. To make the ranges concrete, here is an illustrative monthly cost on a $300,000 loan. Treat these as estimates, not quotes.

The types of PMI

Most borrowers picture PMI as a monthly add-on, but lenders may offer it in a few structures. Knowing the difference helps you compare offers.

• Borrower-paid monthly PMI. The most common type. You pay a monthly premium bundled into your mortgage payment. Its big advantage is that it is cancelable as you build equity, which is the whole point of the rest of this guide.
• Single-premium PMI. You pay the full cost upfront in one lump sum at closing, or roll it into the loan. This can lower your monthly payment, but if you sell or refinance early, you generally do not get a refund of the unused portion.
• Lender-paid PMI (LPMI). The lender pays the PMI premium and recovers the cost by charging you a slightly higher interest rate for the life of the loan. Your monthly payment may look lower than monthly PMI, but because it is baked into the rate, you cannot cancel it the way you can with borrower-paid PMI. You would have to refinance to escape it.

How to cancel PMI

This is the part that saves real money, and it is backed by federal law. The Homeowners Protection Act, as explained by the CFPB, gives borrowers two clear rights on most conventional loans with borrower-paid PMI.

1. Request cancellation at 80% LTV. Once your loan balance reaches 80% of the home's original value, you can submit a written request to cancel PMI. You typically must be current on payments and have a good payment history, and the lender may require that there are no other liens and, in some cases, a current value confirmation.
2. Automatic termination at 78% LTV. Your servicer must automatically end PMI once the balance reaches 78% of the original value, provided you are current on the loan. You do not have to ask for this one, but it is worth tracking so you can confirm it actually happens.

There is also a midpoint termination rule: if you somehow have not reached 78% by the halfway point of the loan's amortization schedule, PMI must end then, as long as you are current.

You can reach the 80% request threshold faster by making extra principal payments. Some lenders will also consider rising home values, letting you cancel earlier based on a new appraisal that shows you have crossed the equity line, though their rules for value-based cancellation vary.

How PMI differs from FHA mortgage insurance (MIP)

A common and costly point of confusion is treating PMI and FHA mortgage insurance as the same thing. They are not.

FHA loans, insured by the Federal Housing Administration under HUD, carry a mortgage insurance premium (MIP) instead of PMI. The crucial difference is duration. On most FHA loans made with less than 10% down, the annual MIP lasts the entire life of the loan. You cannot simply cancel it by reaching 20% or 22% equity the way you can with conventional PMI. The standard way to remove lifetime FHA MIP is to refinance into a conventional loan once you have enough equity.

This difference is a major reason many buyers use an FHA loan to get into a home, then refinance to conventional later to shed lifetime insurance. For a fuller comparison of programs, see our guide on conventional vs FHA vs VA loans.

Strategies to avoid PMI

PMI is avoidable, but every route has a trade-off. Here are the main ones.

• Put 20% down. The cleanest way to skip PMI entirely. The cost is the large amount of cash required, which we discuss below.
• Use a piggyback (80/10/10) loan. You take a first mortgage for 80% of the price, a second loan (often a home equity line) for 10%, and put 10% down. The first loan stays at 80% LTV, so no PMI. The catch is that the second loan usually carries a higher rate and its own terms, so you have to run the full math.
• Accept lender-paid PMI. As covered above, LPMI removes the separate PMI line by raising your rate. There is no free lunch; you pay through the rate for the life of the loan.
• Use a VA loan if you qualify. Loans guaranteed by the Department of Veterans Affairs require no monthly mortgage insurance at all, even with no down payment. They charge a one-time funding fee instead. For eligible veterans and service members, this is often the cheapest path of all.

Is putting 20% down always worth it?

Avoiding PMI is a real benefit, but rushing to 20% down is not automatically the smart move. Consider a scenario: you have $60,000 saved and are buying a $300,000 home. You could put the full $60,000 down to hit 20% and skip PMI, but that would leave you with almost no emergency fund on the day you take on a mortgage, property taxes, and maintenance.

The alternative is to put 10% down, accept a few years of PMI, and keep a healthy cash cushion. PMI on a conventional loan is temporary, and you can work toward canceling it at 80% LTV. Being house-poor with no reserves is a more durable risk, especially if the roof or the furnace fails in year one. The CFPB's homebuying resources walk through how to weigh down payment size against reserves.

The right answer depends on your savings, your rate, your job stability, and how quickly homes are appreciating where you buy. PMI is a cost to manage, not a verdict on whether you can afford the home. For more on sizing the down payment itself, see our down payment guide.

Sources

This guide draws on official explanations of PMI, the Homeowners Protection Act, and FHA mortgage insurance from federal agencies. Confirm current figures and your own loan terms with your lender's Loan Estimate, since premiums and rules change.

This article is educational information, not personalized financial or mortgage advice; consult a licensed mortgage professional about your specific situation.

Sources: Consumer Financial Protection Bureau (consumerfinance.gov), U.S. Department of Housing and Urban Development / FHA (hud.gov), U.S. Department of Veterans Affairs (va.gov), as of 2026.