What Is PMI and How Do You Get Rid of It?
PMI — private mortgage insurance — is one of the most misunderstood costs in home buying. It's not insurance for you. It's insurance for your lender, paid for by you, required because your down payment was under 20%. Here's what it really costs, and the four legitimate ways to make it go away.
Why PMI exists at all
Statistically, borrowers who put less than 20% down default more often. Rather than refuse all of them, lenders insure themselves against the loss: if you default, the insurer pays the lender. The premium gets folded into your monthly payment. You take all the risk of a smaller down payment and then pay for the lender's protection too — that's the deal, and for millions of buyers it's still worth taking (renting for a decade to save 20% is usually worse). But it should be an informed trade, not a hidden one.
What PMI actually costs
PMI typically runs 0.46% to 1.5% of the original loan amount per year, depending on your credit score, down payment, and loan type. On a $320,000 house with 10% down ($288,000 loan):
- Excellent credit (760+): roughly $110–$135/month
- Average credit (700–740): roughly $170–$290/month
- Lower credit (660–680): roughly $290–$360/month
Notice the pattern: PMI punishes the borrowers who can least afford it — small down payment and weaker credit can stack to $350+/month, which is real housing budget. Model it in the mortgage calculator by treating it as part of your monthly insurance figure.
The four ways PMI ends
- Automatic cancellation (78% LTV). By federal law (the Homeowners Protection Act), on conventional loans PMI must automatically terminate on the scheduled date your balance reaches 78% of the home's original value — as long as you're current on payments. You don't have to ask; it just ends.
- Requested cancellation (80% LTV). You can request removal in writing once your balance hits 80% of original value — and lenders must honor it if you're current with a decent payment history. This typically saves 1–2 years of PMI payments versus waiting for the automatic date.
- Appreciation-based removal. If your home's value rises, you can request early removal after as little as 2–5 years (lender rules vary) with a new appraisal showing you hold 20%+ equity. In a rising market this is the fastest exit — but the appraisal costs a few hundred dollars and lenders scrutinize these requests.
- Refinance. If rates have fallen or your equity is strong enough, refinancing into a new loan without PMI removes it as a side effect. Compare total costs first — see the loan calculator for the true-cost view.
Three PMI traps to avoid
- Assuming extra payments don't count. They do — extra principal pays down LTV faster, and the 80%-request date is based on your actual amortization, not a bank's preference. Every extra payment moves your PMI end date closer.
- Confusing conventional PMI with FHA MIP. FHA loans carry mortgage insurance premiums (MIP) that, on most post-2013 loans with under 10% down, last the entire life of the loan — the only exit is refinancing to a conventional loan. This difference alone can make conventional the cheaper choice even at a slightly higher rate.
- Paying PMI on a lender-paid (LPMI) loan. Some loans advertise "no PMI" — the lender bundles the cost into a higher rate instead. You still pay it, invisibly, for the life of the loan. Compare APRs to see it.
Is avoiding PMI always better?
No. Draining your savings to reach 20% down can leave you with no emergency fund — a far more expensive problem than $150/month of PMI. A common sensible structure: put 10–15% down, keep 6 months of expenses in reserve, then attack the balance with extra principal payments until PMI cancels. Run both paths in the mortgage calculator before you decide.
PMI is a bridge, not a life sentence — on a conventional loan it has a legal end date, and you can usually beat it by years.
Informational only — not financial advice. PMI pricing and cancellation rules vary by lender and insurer.