What Is PMI — and How Do You Get Rid of It?
PMI — private mortgage insurance — is an extra monthly fee lenders tack on when you buy a home with less than 20% down. It protects them, not you, and it can quietly cost you thousands of dollars over a few years. The good news: PMI isn't forever. Once you build enough equity, it goes away — and you can often speed that up. Here's exactly how it works and when you can drop it.
What PMI is and why lenders require it
When you put down less than 20% on a conventional loan, you're borrowing more than 80% of the home's value. That's a riskier loan from the lender's point of view: if you stopped paying and they had to foreclose, there's a real chance the sale wouldn't cover what you owe. PMI is insurance the lender buys to cover that gap — but you pay the premium.
The key number is your loan-to-value ratio, or LTV: how much you owe divided by the home's value. Put 10% down and your LTV is 90% — well above the 80% line, so PMI applies. Put 20% down and your LTV is 80%, and conventional lenders typically skip PMI entirely.
One important note: PMI is a conventional-loan term. Government-backed FHA loans have their own mortgage insurance (MIP) with different — and often stickier — rules, so what follows applies mainly to conventional mortgages.
How much PMI costs
PMI usually runs somewhere in the neighborhood of a fraction of a percent to about 1% of the loan amount per year, billed monthly. The exact rate depends on your down payment, credit score, and loan details — a smaller down payment and a lower credit score both push the cost up.
On a $300,000 loan, even a mid-range PMI rate can mean roughly $100 to $200 a month. That's money that does nothing to pay down your balance — it's pure cost. Over the few years it typically takes to reach 20% equity, the total can easily climb into the thousands. That's exactly why getting rid of it matters.
When PMI automatically goes away — and how to request removal early
Federal rules (the Homeowners Protection Act) give you two clear paths off PMI on a conventional loan, both tied to your LTV:
- Automatic termination at 78% LTV: Once your loan balance reaches 78% of the home's original value, your servicer is generally required to cancel PMI automatically — no paperwork needed, as long as you're current on payments. This happens on the schedule of your loan, based on the value when you bought.
- Your right to request cancellation at 80% LTV: You don't have to wait for 78%. Once you reach 80% LTV, you can ask your servicer in writing to cancel PMI. Asking early — the moment you cross that line — can save you several months of premiums.
There's also a midpoint rule: PMI generally must end by the halfway point of your loan term even if you haven't hit 78% LTV yet. To request cancellation at 80%, you'll usually need to be current on payments, have a solid payment history, and sometimes provide a current appraisal to confirm the home's value hasn't dropped.
Two things can get you to that 80% line faster than your regular schedule: extra principal payments and rising home values. If your neighborhood has appreciated, a new appraisal showing more equity may let you cancel PMI sooner than the original payoff schedule would suggest.
How to avoid PMI in the first place
If you'd rather never pay PMI, there are a few common routes — each with a trade-off:
- Put 20% down. The cleanest option: hit 80% LTV at closing and conventional PMI doesn't apply. The trade-off is obvious — saving 20% takes time, and tying up that much cash means less left for emergencies, moving costs, or repairs.
- A piggyback loan (often called 80/10/10). You take a first mortgage for 80%, a second loan for 10%, and put 10% down — avoiding PMI because the first mortgage stays at 80% LTV. The catch: that second loan has its own interest rate (often higher) and payment, so you're trading PMI for additional debt.
- Lender-paid PMI (LPMI). The lender "covers" PMI in exchange for a slightly higher interest rate. Your monthly payment may look cleaner, but you're paying for it through that higher rate — and unlike borrower-paid PMI, it doesn't drop off when you hit 80% equity. You're stuck with the higher rate until you refinance.
None of these is automatically "best." Putting more down builds equity but drains savings; a piggyback avoids PMI but adds a loan; lender-paid PMI simplifies the bill but bakes the cost into your rate for the life of the loan. Run the numbers for your situation — a down payment calculator can show how different down payments change both your PMI and your monthly payment.
A worked example
Say you buy a $300,000 home and put 10% down — a $30,000 down payment and a $270,000 loan. That's a 90% LTV, so PMI applies. At an example rate, your PMI might be around $150 a month, or about $1,800 a year.
To cancel PMI, you need your balance to fall to $240,000 — that's 80% of the original $300,000 value.
On a normal payment schedule, getting from $270,000 down to $240,000 might take several years, during which you'd pay thousands in PMI. But suppose you add $250 a month in extra principal, or the home appreciates and a new appraisal values it higher. Either path gets you to 80% LTV sooner — and the moment you do, you request cancellation in writing and that $150 monthly premium disappears for good. Want to see how extra payments shrink your balance and timeline? The mortgage calculator lets you model it.
Is PMI ever worth it?
Sometimes, yes. PMI lets you buy a home now instead of spending years saving a full 20% down — and in a rising market, the equity you build (and the rent you're not paying) can outweigh a few years of PMI premiums. For many buyers, paying PMI for a while is simply the price of getting into a home sooner.
The smart move is to treat PMI as temporary by design: know your original home value, track your LTV, make extra principal payments when you can, and request cancellation the instant you hit 80%. Do that, and PMI becomes a short, manageable cost rather than a years-long drain.
This is general educational information, not financial advice. PMI rules and rates vary by lender and loan type — confirm the specifics with your servicer. See our disclaimer for more.