What is PMI, and when do you have to pay it?

Private mortgage insurance (PMI) is an insurance policy that protects the lender — not you — if you stop making payments on your mortgage. On conventional loans, PMI is required when you put less than 20% down, and it’s added to your monthly payment until your loan-to-value (LTV) ratio drops to around 78–80%.

When is PMI required?

PMI is triggered whenever your loan-to-value ratio (LTV) is over 80%. That almost always means: you put down less than 20%. The lender treats that as a higher-risk loan and offsets the risk by making you pay insurance premiums on their behalf.

Other loan types handle this differently:

• FHA loans use “MIP” (Mortgage Insurance Premium), not PMI — and on most new FHA loans, MIP stays for the life of the loan unless you refinance.
• VA loans have no PMI at all, though there is a one-time funding fee.
• USDA loans have a similar guarantee fee instead of PMI.

How much does PMI cost?

PMI typically costs between 0.2% and 1.7% of the loan amount per year, billed monthly. Your rate depends mostly on:

• Your credit score. 760+ pays the lowest rates; under 680 pays the most.
• Your down payment. More down = lower PMI rate. 15% down gets much better pricing than 5% down.
• Loan type and size. Jumbo and investment loans have different pricing.

On a $400,000 home with 5% down and good credit, that’s roughly $180–$260 per month of PMI — real money that doesn’t build equity.

Get an estimate tailored to your numbers in the PMI calculator.

How to get rid of PMI

Under federal law (Homeowners Protection Act), PMI on a conventional loan must:

• Automatically drop off when your scheduled LTV reaches 78% — based on the original amortization schedule.
• Be cancelable on request once you reach 80% LTV. You may need a current appraisal.

There are a few strategies to accelerate the process:

• Make extra principal payments to hit 80% LTV faster.
• Request a new appraisal if home values have risen in your area.
• Refinance into a new loan once you have 20% equity (if rates make sense).

Is PMI actually bad?

Not always. If you’d otherwise spend years saving for a 20% down payment while rents and home prices climb, paying a few years of PMI to get into a home sooner can make financial sense. The honest answer is: run the numbers both ways.

Common PMI myths

• Myth: PMI protects the buyer. Truth: It protects the lender.
• Myth: PMI is tax-deductible forever. Truth: The federal deduction has lapsed in recent years and isn’t guaranteed.
• Myth: You have to refinance to cancel PMI. Truth: You can often just request cancellation at 80% LTV.

For a full payment that includes PMI, see the mortgage calculator.