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Private Mortgage Insurance: When It Triggers and How to Get Rid of It
PMI protects the bank, not you, but you pay for it every month. Here's exactly when it kicks in, how it's priced, and the two routes to dropping it.
If you put less than 20% down on a conventional mortgage, you'll pay Private Mortgage Insurance — PMI — on top of your regular payment. It's a separate insurance policy the bank takes out on your loan, and you're the one writing the check. Borrowers pay it for years and often don't know the rules for getting out of it.
PMI exists because the bank thinks you're a riskier borrower without 20% equity in the home. If you default, they have to foreclose, sell the house, and cover the gap. PMI reimburses them for that gap. This guide walks through how PMI is priced, exactly when it stops, and the cheaper alternatives lenders rarely volunteer.
How PMI is priced
PMI typically costs 0.3% to 1.5% of the original loan amount per year, paid monthly. The exact rate depends on three things: your down payment, your credit score, and your debt-to-income ratio. A 720 credit score borrower with 10% down might pay 0.5%; a 650 borrower with 5% down might pay 1.1%.
On a $400,000 loan that 1.1% premium adds $367 per month — over $4,400 a year, with zero of it going to principal. Across the average 7-year period until cancellation, that's more than $30,000 paid for a benefit that accrues entirely to the lender.
How to read PMI on your loan estimate
Look at the Loan Estimate (LE) you receive within three business days of applying. Page 1 shows the estimated monthly payment broken into principal & interest, mortgage insurance, and estimated escrow. The mortgage insurance line is your PMI. Page 2 shows the rate the lender used.
If you don't see a PMI line and you put down less than 20%, ask. The lender may have rolled PMI into the interest rate (called Lender-Paid MI), which means a higher rate forever instead of a separate cancelable premium. LPMI can never be removed without refinancing — and that detail rarely comes up unprompted.
The two ways PMI ends on a conventional loan
Federal law (the Homeowners Protection Act of 1998) gives you two routes. Automatic termination: the servicer must drop PMI when the scheduled loan balance reaches 78% of the original purchase price, assuming you're current on payments. This is based on the original amortization schedule, not your home's current value, so it happens on a predictable date regardless of market appreciation.
Borrower-requested cancellation: you can request PMI removal in writing once the loan balance reaches 80% of the original purchase price. This route gets you out roughly six months sooner than automatic termination and requires the home to still be worth at least its original purchase price (the servicer may require a Broker Price Opinion or appraisal, which you pay for — typically $150–$500).
Using appreciation to drop PMI early
Both HPA termination routes use the original purchase price. But many servicers will also drop PMI based on current market value — usually after at least two years of payments, with 25% equity, or five years with 20% equity. This route requires a new appraisal, but in a rising market it can save you years of PMI payments.
Run the numbers before paying for the appraisal. If your PMI is $300/month and a $500 appraisal saves you 18 months of payments, the appraisal pays for itself in under two months. If it only saves you four months, it may not be worth it.
FHA mortgage insurance is different
If you have an FHA loan, you're not paying PMI — you're paying MIP, the Mortgage Insurance Premium. The pricing rules are different and so are the cancellation rules. On most modern FHA loans, MIP cannot be canceled at any LTV ratio. It runs for the full term of the loan (or 11 years if you put down 10%+).
That permanence is why many borrowers refinance out of FHA into a conventional loan as soon as they hit 20% equity: the new conventional loan has cancelable PMI (or none at all). The break-even depends on rate spreads and closing costs, but the math is often favorable once you cross the 20% equity line.
Key takeaways
- —PMI insures the lender, but you pay 0.3%–1.5% of the loan amount per year for it.
- —Conventional PMI auto-terminates at 78% LTV based on original price.
- —You can request cancellation at 80% LTV — typically six months sooner than auto.
- —FHA MIP is not the same as PMI and usually requires refinancing to remove.
Try the math on your numbers
Frequently asked questions
Is PMI tax deductible?+
Mortgage insurance premium deductibility expired after tax year 2021 at the federal level. A few states still allow it. Check with a tax professional for the current year.
Does paying extra principal eliminate PMI faster?+
Yes — extra principal payments bring the scheduled balance to the 80% threshold sooner, so you can request cancellation earlier. But the lender uses the original amortization schedule for automatic termination, so to benefit you have to actually request cancellation.
Can I avoid PMI without 20% down?+
Three options: a piggyback (80/10/10) loan, a lender-paid MI loan with a higher rate, or a VA loan if you qualify. Each has tradeoffs. Run the lifetime cost on each before deciding.
Does PMI go toward my principal?+
No. It is pure insurance premium. None of it reduces your balance or builds equity.
