PMI Insurance: What It Costs and Exactly When You Can Remove It
Most homeowners who put down less than 20% are paying private mortgage insurance — often $150–$250 a month — without a clear plan to cancel it. This guide explains what you're paying, when you legally qualify to stop, and how to make it happen.
What Is PMI and Why Does It Exist?
Private mortgage insurance (PMI) protects the lender — not you — in the event of default. When a borrower puts less than 20% down, the lender takes on more risk. PMI transfers that risk to an insurance company. You pay the premiums; if you default, the insurer compensates the lender.
From the lender's perspective, PMI enables them to offer loans to buyers who don't have a large down payment while managing their risk exposure. From your perspective, PMI makes homeownership accessible with less saved up — but at an ongoing monthly cost you need to actively plan to eliminate.
PMI applies to conventional loans. Government-backed loans have their own equivalents: FHA loans have MIP (mortgage insurance premium), VA loans have a funding fee (no ongoing insurance), and USDA loans have an annual guarantee fee. This guide focuses on conventional PMI.
How Much Does PMI Cost?
PMI typically costs 0.5%–1.5% of the loan amount per year, paid monthly. The rate depends on your down payment size, credit score, loan type, and the PMI provider your lender uses.
| Loan amount | PMI rate | Monthly cost | Annual cost |
|---|---|---|---|
| $300,000 | 0.5% | $125 | $1,500 |
| $300,000 | 1.0% | $250 | $3,000 |
| $400,000 | 0.5% | $167 | $2,000 |
| $400,000 | 1.0% | $333 | $4,000 |
| $500,000 | 0.75% | $313 | $3,750 |
Higher credit scores typically get lower PMI rates. A borrower with a 760+ score putting 10% down might pay 0.4–0.6%, while a 640-score borrower with the same down payment might pay 1.2–1.5%.
Lifetime cost matters: On a $400,000 loan at 0.8% PMI for 8 years (until you hit 20% equity at normal payment pace), you'd pay approximately $20,000 in PMI. Eliminating it early has real financial impact.
When Does PMI Start?
PMI applies from your first payment on any conventional loan where:
- Your down payment is less than 20% of the purchase price, or
- Your loan-to-value (LTV) ratio exceeds 80% at origination
LTV is calculated as: (Loan Amount ÷ Property Value) × 100. If you buy a $500,000 home with $75,000 down (15%), your LTV is 85% and PMI applies from day one.
The Three Ways PMI Ends
The Homeowners Protection Act (HPA) of 1998 gives borrowers specific legal rights around PMI cancellation for conventional loans. There are three distinct thresholds:
1. Borrower-Requested Cancellation (80% LTV)
When your loan balance reaches 80% of the original appraised value, you have the legal right to request PMI cancellation in writing. Your lender must cancel PMI if:
- You have a good payment history (no 30-day late payments in the past year, no 60-day late payments in the past two years)
- Your property value hasn't declined below the original value
- You don't have a second mortgage
This doesn't happen automatically — you must submit a written request. Your lender may require a property appraisal at your expense (typically $300–$600) to confirm the value.
2. Automatic Cancellation (78% LTV)
When your loan balance drops to 78% of the original purchase price through scheduled payments, the lender is legally required to automatically cancel PMI — no action needed from you. This applies regardless of your request.
Note the distinction: 80% LTV is request territory. 78% LTV is automatic territory. You can save months of PMI by requesting at 80%.
3. Final Termination (Midpoint)
Even if you have late payments that prevent earlier cancellation, PMI must end at the midpoint of your loan term — for a 30-year loan, that's year 15, regardless of balance.
The action to take: Don't wait for automatic termination at 78% if you're close to 80%. Calculate your current LTV, and if you're near the threshold, submit a written cancellation request to save several months of premiums.
How to Request PMI Cancellation: Step by Step
Your current balance ÷ original appraised value = LTV. If this is at or below 80%, proceed. Note that lenders use the original appraised value, not current market value, for the automatic cancellation threshold — unless you're requesting based on appreciation.
Contact your servicer in writing (email or certified mail) requesting PMI cancellation. State your loan number, the date, and reference the Homeowners Protection Act. Keep a copy.
Confirm your payment history is clean. If your servicer requires a new appraisal (they may), arrange and pay for it. The appraiser should be one your lender approves — ask for their preferred list.
Lenders must respond within 30 days of a cancellation request. Once approved, PMI should end within 30 days of approval. Verify it's gone by reviewing your next statement.
Find the exact month your balance reaches 80% LTV based on your loan terms and payment schedule.
Requesting Cancellation Based on Appreciation
If your home's value has risen significantly, you may be able to request PMI cancellation before you've reached 80% LTV through scheduled payments — by establishing that your current LTV based on the appreciated value is already at or below 80%.
Most lenders require:
- The loan must be at least 2 years old (some lenders require 5 years for loans with less than 25% original equity)
- A formal appraisal ordered by the lender (at your cost)
- A good payment history
For example: you bought at $400,000 with 10% down, so your original loan was $360,000 (90% LTV). After a few years, your balance is $340,000 and the home has appreciated to $450,000. Your current LTV is 75.6% — well below 80%. You can request cancellation, and with a clean appraisal, the lender must cancel PMI.
Strategies to Eliminate PMI Faster
If you're still paying PMI and want to eliminate it sooner, these approaches can accelerate your timeline:
- Extra principal payments: Apply extra money to principal each month to reach 80% LTV faster. Use the extra payment calculator to see how much additional payment shaves off the timeline.
- Lump sum payment: A one-time extra principal payment — from a bonus, tax refund, or inheritance — can cross the 80% threshold in one move.
- Home improvements that add value: If you've made substantial improvements, a new appraisal might show higher value and lower LTV. Document all improvements with receipts.
- Refinance: If rates are favorable and your home has appreciated, refinancing with 20%+ equity in the new loan eliminates PMI — though you take on new closing costs.
FHA Loan MIP: Different Rules
FHA loans have different rules. If you put less than 10% down on an FHA loan originated after June 2013, the MIP never cancels — it runs for the life of the loan. To eliminate it, you'd need to refinance into a conventional loan once you have 20% equity.
If you put 10%+ down on an FHA loan, MIP cancels automatically after 11 years. For loans originated before June 2013, older rules may apply — check with your servicer.
This is one reason homebuyers who qualify for conventional financing sometimes prefer it over FHA — the conventional PMI cancellation path is cleaner.