PMI Explained: When You Pay It, How Much, and How to Cancel

What PMI is

Private mortgage insurance protects the lender (not you) if you stop making mortgage payments. It's required on conventional loans when your down payment is less than 20% of the home price.

You pay the premium. The lender collects it.

When you pay PMI

Down payment under 20% → PMI required
Down payment 20%+ → no PMI
FHA loans → no "PMI" but there's MIP (Mortgage Insurance Premium), which works similarly and is often more expensive
VA loans → no PMI, but a one-time funding fee
USDA loans → annual guarantee fee instead

How much PMI costs

Typically 0.3% to 1.5% of the loan amount per year, broken into monthly payments. On a $400,000 loan:

0.3% PMI = $100/month
0.75% PMI = $250/month
1.5% PMI = $500/month

What drives your rate:

Credit score — biggest factor. 760+ gets the lowest rate.
Down payment — 19% down pays less PMI than 5% down
Loan type — fixed-rate loans pay less than ARMs
Property type — investment properties pay more than primary residences

The Mortgage Calculator includes PMI in the monthly payment estimate.

How to cancel PMI

There are two paths:

Automatic cancellation (lender required)

By federal law (Homeowners Protection Act), lenders must cancel PMI when your loan balance reaches 78% of the original purchase price based on the original amortization schedule — not the actual value.

This happens automatically. You don't have to do anything.

Requested cancellation (you initiate)

You can request cancellation when your balance reaches 80% of the original purchase price. This is earlier than the automatic 78% threshold.

To request:

Submit a written request to your loan servicer
Be current on payments (no 30-day-lates in the last 24 months)
Have no second mortgage or HELOC on the property
Sometimes a new appraisal is required (~$500)

The appreciation hack

If your home has appreciated, you may hit 20% equity even without paying down principal. The math:

You bought at $400K with 10% down → $40K equity, $360K loan
The home appreciates to $450K
You now have $90K equity ($450K - $360K) = 20% of current value

In this case, request a PMI cancellation based on current value (not original price). The lender will require an appraisal but most will allow it.

What PMI is NOT

PMI does NOT protect you — it pays the lender if you default.
PMI is NOT tax-deductible for most filers as of 2026.
PMI is NOT permanent — it cancels automatically per federal law.

When PMI makes sense

PMI gets a bad reputation but it can be worth it:

You're trying to enter a hot market — waiting 5 years to save 20% may cost more in lost appreciation than 5 years of PMI.
Your money has better uses — investing the difference at 7%+ often beats avoiding PMI.
You expect a raise — you can refinance to drop PMI once your income grows.

Plug your numbers into the Mortgage Calculator and compare scenarios.

Bottom line

PMI isn't evil — it's the price of getting into a home with less than 20% down. Know the cost, plan the exit, and don't pay it longer than you have to.