What Is Private Mortgage Insurance (PMI)?
Last updated 05/07/2026 by
Ante Mazalin
Edited by
Andrew Latham
Summary:
Private mortgage insurance (PMI) is a type of insurance that conventional mortgage lenders require when a borrower’s down payment is less than 20% of the home’s purchase price.
PMI protects the lender, not the borrower, if the loan defaults.
- Cost: PMI typically costs 0.5% to 1.5% of the loan amount annually, added to your monthly mortgage payment.
- Cancellation: Once your loan balance reaches 80% of the home’s original value, you can request PMI removal; lenders must cancel it automatically at 78%.
- Alternatives: A larger down payment, a piggyback loan, or certain lender-paid PMI programs can help you avoid monthly PMI charges.
PMI adds a recurring cost to homeownership that can amount to hundreds of dollars per month, but for buyers who cannot reach 20% down, it is often the only path into the market.
Understanding the rules for cancellation matters just as much as understanding what you pay.
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What Is PMI?
Private mortgage insurance is issued by private insurers and required by lenders on conventional loans when the borrower’s equity at closing is below 20%. It covers the lender’s losses if a borrower defaults and the sale proceeds do not cover the outstanding balance.
PMI is distinct from the mortgage insurance premium (MIP) required on FHA loans, which is paid to the federal government and operates under different rules. PMI applies specifically to conventional loans through private lenders.
How Much Does PMI Cost?
PMI rates vary based on your loan-to-value ratio, credit score, loan term, and insurer. Lower down payments and lower credit scores produce higher PMI rates.
| Down Payment | LTV Ratio | Typical Annual PMI Rate | Monthly Cost on $300K Loan |
|---|---|---|---|
| 5% | 95% | 0.85% to 1.5% | $213 to $375 |
| 10% | 90% | 0.5% to 1.0% | $125 to $250 |
| 15% | 85% | 0.3% to 0.7% | $75 to $175 |
| 20% | 80% | No PMI required | $0 |
According to the SuperMoney Mortgage Industry Study, PMI adds an average of $150 to $200 per month to housing costs for buyers in the 5% to 10% down payment range.
How PMI Is Paid
Most borrowers pay PMI as a monthly premium folded into their mortgage payment. Two other structures exist but are less common.
- Monthly premium: Added to your mortgage payment each month. Cancellable once you reach 20% equity.
- Single upfront premium: Paid at closing, either in cash or rolled into the loan balance. Cannot be refunded if you sell or refinance early.
- Lender-paid PMI (LPMI): The lender covers the PMI cost in exchange for a higher interest rate. Lower monthly payment but the rate is permanent for the life of the loan.
Pro Tip
Rising home values can accelerate PMI cancellation. If your home has appreciated significantly, you may be able to request an appraisal that establishes a new value and pushes your loan balance below 80% of current value, even if you have not paid down the principal enough to reach that threshold based on your original purchase price. Ask your lender whether a new appraisal is permitted under your loan terms.
When Can You Cancel PMI?
The Homeowners Protection Act of 1998 gives borrowers specific rights around PMI cancellation on conventional loans. There are two thresholds to know.
- At 80% LTV (borrower-requested): Once your loan balance reaches 80% of the home’s original appraised value, you can submit a written request to cancel PMI. Your lender may require a good payment history and, in some cases, a new appraisal.
- At 78% LTV (automatic): Your lender is legally required to cancel PMI automatically when your balance reaches 78% of the original value, based on your scheduled amortization, even without a request from you.
- Midpoint of the loan term: PMI must also be canceled at the midpoint of the loan term regardless of LTV, as long as your payments are current.
PMI vs. MIP: Key Differences
FHA loans require mortgage insurance premiums (MIP) regardless of down payment size, and removal rules are stricter than for PMI.
| Feature | PMI (Conventional) | MIP (FHA) |
|---|---|---|
| Required when | Down payment below 20% | All FHA loans regardless of down payment |
| Upfront cost | None (unless single-premium option chosen) | 1.75% of loan amount at closing |
| Annual cost | 0.3% to 1.5% | 0.15% to 0.75% |
| Cancellation | Cancellable at 80% LTV; automatic at 78% | Required for life of loan if down payment below 10% |
| Who it protects | Private lender | FHA/federal government |
How to Avoid PMI
Several strategies can eliminate or reduce PMI costs for borrowers who cannot reach 20% down.
- Save for 20% down: The most straightforward path. Eliminates PMI entirely from the start.
- Piggyback loan (80/10/10): A second mortgage covers 10% of the purchase price, the borrower puts down 10%, and the primary loan covers the remaining 80%, avoiding PMI on the first loan.
- Lender-paid PMI: The lender absorbs the PMI cost in exchange for a higher interest rate. Works best if you plan to sell or refinance within a few years.
- VA or USDA loans: Both programs offer zero-down-payment options with no PMI requirement for eligible borrowers.
Compare mortgage lenders on SuperMoney to find options that minimize your total borrowing cost, including PMI.
Related reading on mortgages
- Mortgage: how home loans are structured, what lenders evaluate, and how your rate is determined.
- Down payment: how much you need to put down, how it affects your loan terms, and strategies to save faster.
- Loan-to-value ratio: how LTV determines PMI requirements, approval odds, and your mortgage rate.
- Refinancing: how refinancing can eliminate PMI once your equity reaches 20% or your home value increases.
Frequently Asked Questions
What does PMI stand for?
PMI stands for private mortgage insurance. It is a policy required by conventional mortgage lenders when a borrower puts down less than 20%, protecting the lender, not the borrower, against losses if the loan defaults.
How do I get rid of PMI?
You can request cancellation in writing once your loan balance reaches 80% of the original appraised value. Your lender must cancel it automatically when the balance reaches 78%. You can also accelerate the process by making extra principal payments or by having your home reappraised if its value has increased significantly.
Is PMI tax deductible?
PMI deductibility has varied by tax year and income level depending on congressional action. As of the most recent available guidance, deductibility may be limited or unavailable depending on your adjusted gross income and the tax year. Consult a tax professional for guidance specific to your situation.
Does PMI protect me as a borrower?
No. PMI protects the lender, not you. If you default on your mortgage, PMI pays the lender losses. You receive no benefit from the policy and remain liable for any deficiency balance after the home is sold. Homeowners insurance, by contrast, protects your own property and liability.
Can I avoid PMI with a credit union or smaller lender?
Some credit unions and portfolio lenders offer conventional loans with less than 20% down and no PMI requirement, usually in exchange for a slightly higher interest rate. These programs are less common than standard PMI but worth asking about when comparing lenders, particularly if you plan to stay in the home long enough for the rate premium to exceed what PMI would have cost.
Key takeaways
- PMI is required on conventional loans when the down payment is below 20%, protecting the lender against default losses.
- Annual PMI rates typically range from 0.3% to 1.5% of the loan amount, depending on LTV, credit score, and insurer.
- Borrowers can request PMI cancellation at 80% LTV; lenders must cancel it automatically at 78% based on original value.
- FHA loans require mortgage insurance premiums (MIP) under different rules, including lifetime coverage for most borrowers who put less than 10% down.
- Piggyback loans, lender-paid PMI, and VA or USDA loans are alternatives that can eliminate monthly PMI charges.
The right mortgage structure depends on your down payment, credit score, and how long you plan to stay in the home. Compare mortgage lenders on SuperMoney to find options that minimize your total cost, including PMI.
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