Private Mortgage Insurance (PMI)

Private Mortgage Insurance (PMI) is a monthly fee added to your mortgage payment when your down payment is less than 20% of the home's price. It protects the lender, not you, and typically costs 0.5%–1.5% of your loan amount per year. PMI isn't permanent — you can usually request its removal once you reach 20% equity, and lenders are required to cancel it automatically at 22% equity.

When you put down less than 20% on a conventional loan, lenders see you as a higher risk — so they require Private Mortgage Insurance (PMI) to cover their potential loss if you default. It's important to understand: PMI protects the *lender*, not you. If you default, your insurer pays the lender's losses, but you still lose the home.

How much does PMI cost?

PMI typically runs 0.5%–1.5% of your original loan amount per year, divided into monthly payments. The exact rate depends on your credit score, loan-to-value (LTV) ratio, and loan type — better credit and a larger down payment both lower your rate.

How is PMI paid?

Most commonly, it's rolled into your monthly mortgage payment alongside principal, interest, taxes, and insurance (see PITI). Some lenders offer single upfront premiums or lender-paid PMI (often built into a slightly higher interest rate instead).

When does PMI go away?

Under the Homeowners Protection Act, lenders must automatically cancel PMI once your loan balance reaches 78% of the home's original value, as long as you're current on payments. You can also *request* removal earlier, once you hit 80% LTV (20% equity), by contacting your lender — though they may require a new appraisal to confirm your home's value.

How to avoid PMI entirely

The most direct way is a 20%+ down payment. Some loan programs (like certain VA loans) don't require PMI at all regardless of down payment. "Piggyback" second mortgages are another, riskier route some buyers use to avoid it — generally not recommended for first-time buyers.

Key facts

PMI is required on most conventional loans when your down payment is below 20%
Typical cost: 0.5%–1.5% of the loan amount per year
Lenders must auto-cancel PMI at 78% LTV; you can request removal at 80% LTV
PMI protects the lender, not the borrower
FHA loans have a similar but distinct fee (MIP) with different removal rules

Frequently asked questions

Can I avoid PMI without a 20% down payment?

Generally no for conventional loans, though some loan types (like VA loans) don't require it, and lender-paid PMI options exist (usually at a higher interest rate instead).

Is PMI the same as homeowners insurance?

No — homeowners insurance protects your property; PMI protects the lender against your default. They're both often collected via escrow, which is why people confuse them.

Does PMI apply to FHA loans?

FHA loans use a similar fee called MIP (Mortgage Insurance Premium), which has different rules — notably, it often can't be cancelled for the life of the loan if your down payment was under 10%.