PMI Guide: Private Mortgage Insurance Costs

What Is Private Mortgage Insurance?

Private mortgage insurance (PMI) protects the lender — not you — if you default on a conventional loan with less than 20% down. It is the price of buying sooner with a smaller down payment: the lender takes on more risk, and you pay a monthly premium until you build enough equity. On a typical loan, PMI adds roughly 0.3% to 1.5% of the original loan amount per year to your housing costs.

PMI is different from homeowner's insurance (which protects your property) and from FHA mortgage insurance premiums (MIP), which follow different rules. If you are weighing a smaller down payment, model the PMI cost in a Home Affordability Calculator so you see the true monthly payment.

How Much Does PMI Cost?

PMI premiums depend on your down payment size, loan amount, and credit score:

• Typical range: 0.3% to 1.5% of the loan amount annually, divided into monthly payments.
• Example: On a $380,000 loan (5% down on a $400,000 home) at 0.7% annually, PMI costs about $2,660 per year — roughly $222 per month.
• Credit score matters: Higher scores generally qualify for lower PMI rates; lower scores pay more.
• Down payment matters: 15% down costs less in PMI than 5% down because the lender's risk is lower.

PMI is usually tax-deductible only in limited circumstances and phases out at higher incomes — check current tax rules rather than assuming a deduction.

How to Get Rid of PMI

PMI is not permanent. Under federal law (the Homeowners Protection Act), conventional PMI must be handled as follows:

• Borrower-requested cancellation: Once your loan balance reaches 80% of the home's original value, you can request cancellation — you typically must be current on payments and may need to pay for a new appraisal.
• Automatic termination: The servicer must automatically drop PMI when the balance is scheduled to reach 78% of the original value, as long as you are current.
• Appreciation shortcut: If your home's value rises, a new appraisal showing 20%+ equity based on current value can support an early cancellation request (lenders usually require at least two years of payment history for appreciation-based requests).
• Refinancing: Refinancing into a new loan at 80% loan-to-value or better eliminates PMI entirely.

Track your equity annually — many homeowners pay PMI months longer than necessary simply because they never ask. Our mortgage points guide covers another upfront cost worth comparing.

Ways to Avoid PMI Entirely

• Put 20% down: The straightforward route — no PMI required at 80% loan-to-value or less.
• Piggyback loan (80-10-10): An 80% first mortgage, 10% second mortgage, and 10% down avoids PMI, though the second loan carries a higher rate.
• Lender-paid PMI: The lender covers PMI in exchange for a higher interest rate — worth comparing since the higher rate lasts the life of the loan while PMI would eventually drop off.
• VA or USDA loans: Eligible borrowers avoid PMI-style insurance (VA charges a funding fee; USDA charges its own guarantee fees).
• Single-premium PMI: Paying PMI as one upfront lump sum at closing can cost less overall than monthly premiums if you stay long enough.

PMI vs FHA Mortgage Insurance (MIP)

FHA loans work differently: they charge an upfront mortgage insurance premium (financed into the loan) plus an annual MIP. Crucially, FHA annual MIP typically cannot be cancelled based on equity alone — you must refinance into a conventional loan to remove it. This makes conventional loans with PMI the cheaper long-term choice for buyers who will reach 20% equity within a few years and have the credit to qualify.

Conclusion

PMI is the cost of buying with less than 20% down — often $100 to $300 per month — but it is temporary and removable. Compare the total cost of buying now with PMI against waiting to save 20% using the rent vs buy math for your market. If PMI gets you into a home years sooner in an appreciating market, it is often money well spent — as long as you actively work to remove it.