Private mortgage insurance exists because lenders lose money when borrowers default and the foreclosure sale does not cover the loan balance. When your down payment is less than 20%, the loan-to-value ratio is high enough that lenders require PMI to protect themselves — not you. You pay the premium; the lender collects the benefit. Understanding this distinction helps clarify why removing PMI as quickly as possible is almost always the right financial move.

How Much Does PMI Cost?

PMI typically costs between 0.5% and 1.5% of the original loan amount per year, depending on your down payment size, credit score, loan type, and insurer. On a $350,000 loan, that is $1,750 to $5,250 per year — or $146 to $438 per month added to your mortgage payment.

The factors that affect your specific PMI rate:

  • Down payment / LTV: A 10% down payment means higher PMI than 15% down. The closer to 20%, the lower the premium.
  • Credit score: Higher scores qualify for lower PMI rates. The difference between a 680 and 760 credit score can be 0.3–0.5% in PMI annually.
  • Loan type: Fixed-rate loans typically have lower PMI than adjustable-rate mortgages.
  • Loan term: 15-year loans usually have lower PMI than 30-year loans at the same LTV.

Use the PMI Calculator to estimate your specific monthly cost and see the total you will pay over the life of PMI.

How LTV Triggers PMI

PMI is required when your loan-to-value ratio exceeds 80% at origination. LTV is simply your loan balance divided by the appraised value of the property:

LTV = Loan Balance / Property Value × 100

A $280,000 loan on a $350,000 home has an LTV of 80% — the threshold where PMI is not required. One dollar more in loan balance and PMI kicks in. This is why 20% down payments have become a widely cited benchmark, even though many first-time buyers cannot meet it.

Strategies to Avoid PMI at Closing

The 20% down payment: The cleanest solution. If you can accumulate 20% down, you avoid PMI entirely and often qualify for a better interest rate simultaneously.

Piggyback loans (80/10/10): You take a first mortgage for 80% of the purchase price, a second mortgage or HELOC for 10%, and put 10% down. No single loan exceeds 80% LTV, so no PMI is required. The second mortgage typically carries a higher rate, so compare the blended cost against PMI before deciding.

Lender-paid PMI (LPMI): The lender pays the PMI premium in exchange for a slightly higher interest rate on your mortgage. This eliminates the PMI line item from your monthly payment but increases your rate for the life of the loan — it is rarely the best option unless you plan to sell or refinance within a few years.

Removing PMI on an Existing Mortgage

Under the Homeowners Protection Act (HPA), lenders must automatically cancel PMI when your loan balance reaches 78% of the original purchase price, based on your original amortization schedule. But you do not have to wait that long:

  • Request cancellation at 80% LTV: Once your loan balance drops to 80% of the original purchase price (not current value) through scheduled payments, you can formally request PMI cancellation. The lender may require that you have a good payment history and no subordinate liens.
  • Appraisal-based cancellation: If your home has appreciated, you may have already crossed the 80% LTV threshold based on current value even if the original amortization schedule hasn't gotten there. Most lenders will consider canceling PMI if a new appraisal shows sufficient equity — typically after 2 years of ownership.
  • Refinancing: If rates have dropped or your home has appreciated significantly, refinancing into a new loan at 80% LTV or below eliminates PMI and potentially lowers your rate simultaneously.

Track your equity position with the Home Equity Calculator to know exactly when you are eligible to request PMI removal. Even a few months earlier than the automatic cancellation date can save hundreds of dollars.

FHA Loans and MIP

FHA loans use a different insurance product called Mortgage Insurance Premium (MIP) rather than PMI, and the rules are less favorable. For most FHA loans originated after June 2013 with a down payment below 10%, MIP lasts for the entire life of the loan — it does not automatically cancel when you reach 80% LTV. This is one of the strongest arguments for refinancing out of an FHA loan once you have sufficient equity: a conventional loan at 80% LTV has no PMI, while an FHA loan at the same LTV still carries MIP indefinitely. Use the Mortgage Calculator to model the payment difference between keeping an FHA loan with MIP versus refinancing into a conventional loan without PMI.