Buying Tools
PMI Calculator
Calculate your monthly private mortgage insurance, when PMI drops off, and the total cost over your loan. No signup required.
PMI Details
PMI applies under 20% down
Monthly PMI
$0
PMI Removal
Homeowners Protection Act requires automatic termination at 78% LTV
Insights
What Is PMI?
Private Mortgage Insurance (PMI) is a specialized type of insurance that conventional lenders require homebuyers to purchase when making a down payment of less than 20% on a home purchase. PMI does not protect you or insure your property; instead, it safeguards the lender against financial loss if you default on your mortgage payments.
The cost of PMI varies depending on several key risk factors, most notably your loan-to-value (LTV) ratio at origination, your loan amount, and your credit score tier. Annual PMI rates typically range from roughly 0.30% to over 1.50% of the original loan balance, billed in monthly installments added directly to your monthly mortgage payment.
Fortunately, PMI is not permanent on conventional loans. Under federal consumer protection guidelines established by the Homeowners Protection Act, lenders are legally required to automatically cancel PMI once your loan amortization schedule reaches 78% LTV, or when you formally request cancellation at 80% LTV.
How to Remove PMI Faster
Waiting years for your loan balance to naturally amortize down to 78% LTV can cost thousands in extra insurance premiums. Here are effective ways to eliminate PMI sooner:
- Make extra principal payments: Adding even an extra $100 to $200 per month toward principal significantly accelerates the date your balance hits the 80% or 78% LTV threshold.
- Request a new appraisal: If local real estate appreciation has rapidly increased your home's market value, you can request a lender-approved appraisal to prove your current LTV is below 80%.
- Perform strategic home renovations: Upgrading kitchens, bathrooms, or adding square footage can boost home equity and justify early PMI removal upon reappraisal.
- Refinance the mortgage: If market interest rates drop or your home value surges, refinancing into a new conventional loan with an LTV at or below 80% eliminates PMI entirely.
Frequently asked questions
What is PMI and why do I pay it?
PMI stands for Private Mortgage Insurance. It is an insurance policy that protects the lender in case you default on your mortgage. Lenders typically require PMI when you put down less than 20% on a conventional home loan because higher loan-to-value (LTV) ratios carry higher financial risk.
When does PMI go away?
Under the federal Homeowners Protection Act, PMI automatically terminates when your loan balance reaches 78% of the home's original appraised value, provided your payments are current. You can also request cancellation earlier when your equity reaches 80% (LTV drops to 80%) based on amortization or a new home appraisal.
How much is PMI on a $400,000 home?
On a $400,000 home with a 10% down payment ($40,000 down, $360,000 loan), annual PMI rates typically range from 0.40% to 0.95% of the loan amount depending on your credit score, resulting in a monthly PMI payment of roughly $120 to $285.
Can I avoid PMI without 20% down?
Yes. Alternatives include piggyback loans (such as an 80-10-10 mortgage), lender-paid mortgage insurance (LPMI) in exchange for a slightly higher interest rate, or utilizing VA or USDA loans which do not require monthly PMI (though they have alternative guarantee fees).
Does PMI rate depend on credit score?
Yes, significantly. Borrowers with excellent credit scores (760+) receive the lowest annual PMI rates, whereas borrowers with fair or poor credit scores may pay more than double the percentage rate for the exact same loan amount and LTV ratio.