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:

1. Submit a written request to your loan servicer
2. Be current on payments (no 30-day-lates in the last 24 months)
3. Have no second mortgage or HELOC on the property
4. 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.

What it actually costs

PMI is typically quoted as an annual percentage of the loan balance, usually between 0.5% and 1.5%, driven mostly by your credit score and down payment. On a $350,000 home with 5% down — a $332,500 loan:

PMI rate	Monthly	Annual
0.50%	$139	$1,663
0.75%	$208	$2,494
1.00%	$277	$3,325

None of it builds equity. It insures the lender against your default, and you pay the premium.

The two removal thresholds, and why they differ

Under the Homeowners Protection Act, conventional loans have two distinct triggers:

• 80% loan-to-value — you may request cancellation. This is a request. It usually requires a written ask, a good payment history, and often an appraisal at your expense.
• 78% loan-to-value — the servicer must cancel automatically. No request needed, but it is based on the original amortisation schedule, not on what your home is worth today.

That second point is the trap. Automatic termination ignores appreciation entirely. If your home has gained value, waiting for automatic termination can mean paying PMI for years longer than necessary.

On the $350,000 example, 80% is a balance of $280,000 and 78% is $273,000. On a 30-year loan, the gap between reaching those two points through scheduled payments alone can be well over a year of premiums.

Getting out faster than the schedule

Three routes, in rough order of cost:

1. Request cancellation based on a new appraisal. If the market or your improvements have lifted the value, current LTV may already be under 80% even though the original schedule says otherwise. An appraisal costs a few hundred dollars against premiums that run into the thousands.
2. Make targeted extra principal payments. Because the threshold is a balance, not a date, modest additional principal can pull cancellation forward by many months.
3. Refinance — but only if the rate makes sense on its own. Refinancing solely to escape PMI usually costs more in closing costs than it saves, unless you are also capturing a genuine rate improvement.

Note that most servicers require at least two years of payments before considering an appraisal-based cancellation, and five years if the request relies on appreciation rather than principal paydown.

FHA is a different product with a different rule

FHA loans carry mortgage insurance premium, not PMI, and the difference is structural rather than cosmetic:

• There is an upfront premium, typically 1.75% of the loan, financed into the balance.
• There is an annual premium paid monthly.
• With less than 10% down, the annual premium lasts the life of the loan. It never cancels at any equity level.

The only way out is refinancing into a conventional loan once you have sufficient equity. For borrowers who can qualify conventionally, this single difference often outweighs FHA's lower rate or easier credit requirements over the life of the loan.

Is avoiding PMI worth it?

Not always. The common advice is to wait until you have 20% down, but that ignores what happens while you save. If home prices rise faster than you accumulate the difference, waiting costs more than the premiums would have.

Buying earlier with PMI makes sense when:

• Prices in your market are rising faster than your savings rate.
• You expect to reach 80% quickly through appreciation or extra principal.
• The alternative is renting at a cost close to the mortgage payment.

Waiting makes sense when:

• Your PMI rate is at the high end because of credit.
• The market is flat or softening.
• You are within a year of 20% anyway.

Run both scenarios with the mortgage payment calculator before deciding. The answer depends on your market, not on a rule of thumb.