If you're buying a home with less than 20% down, your lender will likely require private mortgage insurance — PMI. It's one of the most misunderstood costs in homeownership, and knowing how it works can save you thousands of dollars.
In simple terms: PMI protects the lender — not you — if you default on the loan. You pay for it, but it provides zero direct benefit to you as a borrower.
PMI typically costs between 0.5% and 1.5% of the loan amount per year, depending on your credit score, down payment, and loan type. It's usually added to your monthly mortgage payment.
PMI is required on conventional loans when your down payment is less than 20% of the home's purchase price. FHA loans have their own version called MIP (mortgage insurance premium), which works differently and can last the life of the loan.
By law, lenders must cancel PMI when your loan balance reaches 78% of the original purchase price — as long as you're current on payments.
You can request PMI removal when your balance reaches 80% of the original value. You may need a home appraisal to confirm the value.
If your home has appreciated significantly, refinancing with 20%+ equity eliminates PMI — though you'll pay closing costs.
Paying down your principal faster gets you to 20% equity sooner and removes PMI earlier.
The simplest way is a 20% down payment. If that's not possible, some lenders offer "piggyback loans" — a second mortgage to cover part of the down payment — or lender-paid PMI where the cost is built into a slightly higher interest rate instead.
Our mortgage calculator shows your full monthly payment including PMI based on your down payment.
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