Understanding PMI: What It Is, What It Costs, and How to Get Rid of It

Updated March 2026 · By the LendCalcs Team

Private mortgage insurance is a cost you pay to protect the lender against the risk of your default. It does not protect you — it protects the bank. When you put less than 20 percent down on a conventional loan, the lender requires PMI because a smaller down payment means they stand to lose more if you stop paying. PMI typically costs 0.5 to 1.5 percent of the loan amount annually, adding $100 to $300 per month on a typical mortgage. Understanding how PMI works, what it costs, and how to eliminate it can save you thousands of dollars.

When PMI Is Required

PMI is required on conventional loans when the down payment is less than 20 percent of the purchase price, resulting in a loan-to-value ratio above 80 percent. This applies to purchase mortgages and to refinances where the equity position is below 20 percent. The requirement comes from the lender and the loan investors (Fannie Mae and Freddie Mac), not from government regulation.

FHA loans have their own mortgage insurance (MIP, not PMI) that works differently — FHA MIP is required regardless of down payment size and, for most borrowers, lasts the life of the loan unless you put 10 percent or more down. VA loans charge a funding fee instead of mortgage insurance. USDA loans charge a guarantee fee. The PMI discussion in this guide applies specifically to conventional loans.

How Much PMI Costs

PMI rates vary based on your credit score, down payment percentage, and loan type. A borrower with a 760 credit score putting 15 percent down might pay 0.30 percent annually, while a borrower with a 680 score putting 5 percent down might pay 1.10 percent. On a $300,000 loan, that is the difference between $75 per month and $275 per month.

The cost is significant over time. Paying $150 per month in PMI for 5 years (until you reach 20 percent equity) costs $9,000. This is money that builds zero equity and provides zero benefit to you. It is purely the cost of borrowing with a smaller down payment. This does not mean you should avoid buying until you have 20 percent — the math of PMI versus continuing to rent versus waiting for a larger down payment depends on your specific market and situation.

• Excellent credit (760+), 15% down: 0.20-0.40% annually
• Good credit (720-759), 10% down: 0.40-0.70% annually
• Average credit (680-719), 5% down: 0.70-1.10% annually
• Below average credit (640-679), 3% down: 1.10-1.50% annually

How to Remove PMI

Under the Homeowners Protection Act, your lender must automatically cancel PMI when your loan balance reaches 78 percent of the original purchase price — not the current value. You can request cancellation earlier when the balance reaches 80 percent of the original value, provided you have a good payment history and no junior liens.

For borrowers in rising markets, you can request PMI cancellation based on the current appraised value once your equity reaches 20 percent, even if your loan balance has not dropped to 80 percent of the original purchase price. This typically requires ordering a new appraisal (at your expense, usually $400 to $600) and demonstrating the equity position. Some lenders also accept a broker price opinion, which is cheaper than a full appraisal.

Strategies to Minimize PMI Duration

Making extra principal payments accelerates your path to 80 percent LTV. Even an extra $100 per month applied to principal can shave months or years off your PMI obligation. The savings compound: you eliminate the PMI payment and that money can then be redirected to further accelerate principal paydown or other financial goals.

Home improvements that increase property value can also help. If your home appreciates — through market conditions, renovations, or both — to the point where your equity exceeds 20 percent, you can request an appraisal-based PMI removal. Strategic improvements like kitchen updates, bathroom remodels, and curb appeal enhancements offer the best value-to-cost ratio for this purpose.

PMI Alternatives: Other Ways to Avoid It

Piggyback loans (also called 80/10/10 or 80/15/5) use a second mortgage to cover part of the down payment, keeping the first mortgage at 80 percent LTV and avoiding PMI entirely. The second mortgage has a higher interest rate, but the combined cost is often less than the first mortgage with PMI. This structure also provides a clear payoff target — eliminate the second mortgage and you have only the first.

VA loans avoid mortgage insurance entirely, making them one of the most powerful home-buying tools available to eligible borrowers. Some credit unions and community banks offer portfolio loan products with no PMI for borrowers with strong credit and relationships with the institution. These are worth exploring if you have a credit union membership or a relationship with a local bank.

FHA MIP vs Conventional PMI

FHA mortgage insurance premium (MIP) and conventional PMI are often confused but work very differently. FHA requires both an upfront MIP (1.75 percent of the loan amount, typically financed into the loan) and annual MIP (0.55 percent for most borrowers). For FHA loans with less than 10 percent down, MIP lasts the entire life of the loan — it never goes away.

Conventional PMI is cancellable once you reach 20 percent equity. This makes conventional loans significantly cheaper over the long term for borrowers who qualify. If you started with an FHA loan because of credit or down payment constraints, consider refinancing to a conventional loan once you have 20 percent equity and a credit score of 680 or higher. This eliminates the permanent MIP and may also lower your interest rate.