What Is PMI?

Private mortgage insurance (PMI) is a type of insurance that protects the lender — not you — if you stop making payments on your mortgage. It is required by most lenders when you make a down payment of less than 20% on a conventional home loan. PMI reduces the risk for the lender, which in turn makes it possible for borrowers to buy a home without saving up a full 20% down payment.

PMI is paid by the borrower but benefits the lender. If you default on your loan, the insurance company reimburses the lender for a portion of the outstanding balance. This arrangement allows lenders to approve borrowers who might otherwise be considered too risky, expanding access to homeownership for millions of buyers. However, it adds to your monthly housing cost, so it is important to understand how it works and plan for it in your budget. Use our mortgage calculator to see how PMI affects your total monthly payment.

When Is PMI Required?

PMI is required on conventional loans whenever your down payment is less than 20% of the home’s purchase price. In lending terms, this means your loan-to-value (LTV) ratio is above 80%. The LTV ratio is calculated by dividing the loan amount by the appraised value or purchase price (whichever is lower).

Common scenarios where PMI applies:

• 3% down payment (97% LTV): Many conventional loan programs allow down payments as low as 3%, but PMI will be required and will cost more at this high LTV ratio.
• 5% down payment (95% LTV): A popular option for buyers who want to keep more cash in reserve. PMI rates are slightly lower than at 3% down.
• 10% down payment (90% LTV): PMI is still required but costs significantly less than at 3% or 5% down. This is often a good balance between upfront cost and manageable PMI payments.
• 15% down payment (85% LTV): You are close to the threshold. PMI costs are relatively low, and you will reach the 80% LTV removal point faster through regular payments and appreciation.

It is worth noting that PMI applies specifically to conventional loans. Government-backed loans such as FHA, VA, and USDA have their own mortgage insurance structures. FHA loans, for instance, require a mortgage insurance premium (MIP) regardless of down payment size — see the comparison below, or read our detailed FHA vs. conventional loan guide.

How Much Does PMI Cost?

PMI typically costs between 0.2% and 2% of the original loan amount per year, depending on your credit score, down payment size, loan amount, and the insurer. Most borrowers pay between 0.5% and 1% annually. The cost is usually divided into 12 monthly installments and added to your mortgage payment.

Here is a concrete example. On a $300,000 home with a 10% down payment, your loan amount would be $270,000. At a PMI rate of 0.5% per year, your annual premium would be $1,350, or about $112 per month. At a PMI rate of 1%, that rises to $2,700 per year, or $225 per month. That is a meaningful addition to your housing costs.

Key factors that influence your PMI rate:

• Credit score: Borrowers with credit scores above 760 pay the lowest PMI rates, while scores below 680 can result in rates two to three times higher.
• Down payment size: A larger down payment means a lower LTV ratio and a lower PMI rate. Going from 5% down to 10% down can cut your PMI cost nearly in half.
• Loan amount: PMI is calculated as a percentage of the loan, so larger loans mean higher dollar amounts even at the same rate.
• Loan term: Some insurers charge slightly different rates for 15-year versus 30-year loans.
• Coverage level: Lenders may require different coverage percentages (typically 25% to 35% of the loan), which affects the premium.

PMI is one of several costs that first-time buyers often underestimate. For a full picture of what to expect, see our closing costs guide.

How to Avoid PMI

While PMI enables many buyers to purchase homes sooner, it is an additional cost that provides no direct benefit to you. There are several strategies to avoid it entirely:

• Save a 20% down payment: The most straightforward approach. On a $350,000 home, that means saving $70,000. It takes longer, but you eliminate PMI entirely and start with more equity.
• Piggyback loan (80-10-10): You take out a primary mortgage for 80% of the home price, a second mortgage (home equity loan or HELOC) for 10%, and put 10% down. Because the primary mortgage is at 80% LTV, no PMI is required. However, the second mortgage typically carries a higher interest rate, so you need to compare total costs carefully.
• Lender-paid PMI (LPMI): Some lenders will pay your PMI in exchange for a slightly higher interest rate on the loan. This can make sense if you plan to sell or refinance within a few years, since you avoid the monthly PMI charge. However, the higher rate lasts the life of the loan, so it can cost more over time.
• VA loans: If you are a veteran, active-duty service member, or eligible surviving spouse, VA loans require no down payment and no mortgage insurance at all. There is a one-time funding fee, but no ongoing monthly insurance cost.
• Down payment assistance programs: Many state and local programs offer grants or forgivable loans to help first-time buyers reach the 20% threshold. Check our first-time homebuyer guide for an overview of available programs.

When deciding whether to avoid PMI by saving more or to buy sooner and pay it, consider how quickly home prices are rising in your target market. If prices are appreciating rapidly, the cost of waiting to save 20% may exceed the cost of paying PMI for a few years. Our affordability guide can help you think through the trade-offs.

How to Remove PMI

If you are currently paying PMI on a conventional loan, the good news is that it does not last forever. Federal law — specifically the Homeowners Protection Act of 1998 — gives you the right to cancel PMI under certain conditions:

• Request cancellation at 80% LTV: You can ask your lender to cancel PMI once your loan balance reaches 80% of the original purchase price or appraised value at the time of purchase. You must be current on payments and have a good payment history to qualify.
• Automatic termination at 78% LTV: Under federal law, your lender must automatically cancel PMI when your loan balance reaches 78% of the original value, as long as you are current on payments. This happens based on the original amortization schedule, not early payments.
• Midpoint termination: Even if you have not reached 78% LTV, PMI must be terminated at the midpoint of your loan’s amortization schedule (e.g., year 15 of a 30-year mortgage), provided you are current on payments.
• New appraisal: If your home has appreciated significantly, you may be able to request a new appraisal to prove that your current LTV is below 80%. Many lenders allow this after two years of ownership, though policies vary. You typically need to reach 75% LTV based on the new appraisal if you have owned the home for two to five years, or 80% if you have owned it for more than five years.
• Refinance: If market conditions are favorable and your home has gained value, refinancing into a new loan with less than 80% LTV eliminates PMI on the new loan. Factor in closing costs to make sure refinancing makes financial sense.

To request cancellation, contact your loan servicer in writing. Keep records of your request and follow up if you do not receive a response within 30 days. Some servicers require that you pay for a new appraisal, which typically costs $300 to $600.

PMI vs. MIP (FHA Insurance)

PMI and MIP (mortgage insurance premium) are often confused, but they apply to different loan types and have important structural differences:

• PMI is for conventional loans: It is required when your down payment is below 20% and can be removed once you reach 80% LTV. PMI is provided by private insurance companies, and rates vary by insurer.
• MIP is for FHA loans: FHA loans require both an upfront mortgage insurance premium (1.75% of the loan amount, usually rolled into the loan) and an annual premium (0.50% to 0.55%, depending on down payment size and loan term) paid monthly.
• Removal rules differ significantly: PMI can be canceled at 80% LTV. FHA MIP, for loans originated after June 2013 with less than 10% down, lasts for the entire life of the loan. To eliminate it, you must refinance into a conventional loan.
• Cost comparison: FHA MIP rates are the same regardless of credit score, which benefits borrowers with lower scores. PMI rates, by contrast, are credit-score-dependent. A borrower with a 740 credit score will pay substantially less for PMI than for FHA MIP, while a borrower with a 640 score may find FHA MIP comparable or even cheaper than PMI.

For a detailed side-by-side comparison of these loan types, including down payment requirements, interest rates, and total cost of insurance, read our FHA vs. conventional loan comparison.

Key Takeaways

• PMI is required on conventional loans when your down payment is less than 20%. It protects the lender, not the borrower.
• PMI typically costs 0.2% to 2% of your loan amount annually. On a $300,000 loan with 10% down, expect to pay roughly $100 to $200 per month.
• You can request PMI cancellation at 80% LTV, and your lender must automatically remove it at 78% LTV under federal law.
• Strategies to avoid PMI include saving 20% down, piggyback loans, lender-paid PMI, VA loans, and down payment assistance programs.
• FHA mortgage insurance (MIP) works differently from PMI — it cannot be removed on most FHA loans without refinancing into a conventional loan.
• Whether to pay PMI and buy sooner or wait to save 20% depends on your market conditions, savings timeline, and overall financial situation. Use our mortgage calculator to model different scenarios.

Frequently Asked Questions

Is PMI tax-deductible?

PMI has been tax-deductible in some years through a provision that Congress has periodically renewed. The deduction has expired and been reinstated multiple times. As of the most recent tax legislation, you should check with the IRS or a qualified tax professional to confirm whether the PMI deduction is available for the current tax year. When available, the deduction phases out for borrowers with adjusted gross income above $100,000.

Can I choose my PMI company?

In most cases, the lender selects the PMI provider. However, some lenders work with multiple insurers and may offer you a choice. PMI rates can vary between companies, so if your lender offers options, it is worth comparing quotes. Even if you cannot choose the insurer, you can shop different lenders, and the PMI cost will factor into the overall loan estimate each lender provides.

How long does PMI last on a 30-year mortgage?

The duration depends on your down payment, interest rate, and how quickly your loan balance decreases. With a 10% down payment on a 30-year fixed-rate mortgage, you would typically reach 80% LTV — and be eligible to request PMI cancellation — in about 8 to 10 years through regular payments alone. Home price appreciation can shorten this timeline significantly. Automatic termination at 78% LTV usually occurs around 10 to 11 years into the loan. Making extra principal payments accelerates the process.

Does PMI protect me if I cannot make my mortgage payments?

No. PMI protects the lender, not the borrower. If you fall behind on payments and the home goes into foreclosure, PMI reimburses the lender for a portion of their losses. You, as the borrower, still face the full consequences of default, including damage to your credit score and potential deficiency judgments. To protect yourself against payment difficulties, maintain an emergency fund and consider purchasing separate mortgage protection insurance, which pays your mortgage if you become disabled or lose your job.