What Is PMI?
Private mortgage insurance (PMI) is an insurance policy required on conventional loans when the borrower puts less than 20% down — meaning the loan-to-value ratio exceeds 80% at closing. PMI protects the lender, not the borrower, against financial loss if the borrower defaults and the foreclosure sale doesn't cover the outstanding loan balance.
Despite protecting the lender, the borrower pays the premium — either as a monthly charge collected through escrow, as an upfront single premium at closing, or as a combination of both.
How Much Does PMI Cost?
PMI rates depend primarily on your credit score, LTV, loan term, and the insurer. The range is typically 0.2% to 2.0% of the loan amount per year. Lower LTV and higher credit score produce lower PMI rates.
| Credit Score | LTV | Approx. Annual PMI Rate | Monthly Cost (on $350K) |
|---|---|---|---|
| 760+ | 85% (15% down) | 0.20% – 0.40% | $58 – $117 |
| 740–759 | 90% (10% down) | 0.50% – 0.80% | $146 – $233 |
| 700–739 | 90% (10% down) | 0.75% – 1.10% | $219 – $321 |
| 680–699 | 95% (5% down) | 1.10% – 1.60% | $321 – $467 |
| 640–679 | 97% (3% down) | 1.50% – 2.00% | $438 – $583 |
These are illustrative ranges — actual PMI quotes vary by insurer and loan program. Lenders are required to provide your actual PMI rate on the Loan Estimate.
How to Remove PMI
The Homeowners Protection Act (1998) establishes three ways PMI can end:
- Borrower-initiated cancellation — You request cancellation in writing once your loan balance reaches 80% of the original purchase price. You must have good payment history (no 30-day lates in the past 12 months, no 60-day lates in the past 24 months), and the lender may require a new appraisal if you're relying on appreciation.
- Automatic cancellation — The servicer must automatically cancel PMI when your balance reaches 78% of the original purchase price based on the original amortization schedule — even if you never request it. No action needed; it cancels at the scheduled date.
- Final termination — PMI must be cancelled at the midpoint of the loan term (month 180 of a 30-year loan) even if the balance hasn't reached 78%, as long as payments are current. This is the safety net for slow-amortizing scenarios.
Accelerating PMI removal
You can reach the 80% LTV threshold faster by:
- Making extra principal payments each month
- Making a one-time lump sum principal payment
- Requesting a new appraisal if your home's value has risen significantly — if current LTV is below 80% based on current value (not original price), many lenders will cancel PMI early
Worked example — extra payments to remove PMI
Home purchased for $400,000 with 10% down. Original loan: $360,000
PMI cancellation threshold (80%): $320,000
Need to pay down: $40,000 in principal from current balance to $320,000
Adding $300/month extra to principal could eliminate PMI 3–4 years earlier — saving thousands in premiums before automatic cancellation would have occurred.
Use the PMI Removal Calculator to calculate exactly when your PMI will auto-cancel, and how much faster extra payments would get you there.
PMI vs. FHA MIP: Key Differences
| Feature | PMI (Conventional) | FHA MIP |
|---|---|---|
| Who requires it | Lender (when LTV > 80%) | FHA (always required) |
| Upfront premium | Optional (single-pay option) | 1.75% of loan amount |
| Annual premium | 0.2% – 2.0% | 0.15% – 0.75% |
| Can it be removed? | Yes — at 80% LTV (or 78% automatically) | Only by refinancing to conventional |
| Life of loan? | No — ends when equity reached | Yes (loans < 10% down, post-June 2013) |
| Credit score minimum | Typically 620+ | 580+ (3.5% down) / 500+ (10% down) |
If you currently have an FHA loan and you've built 20% or more equity, refinancing to a conventional loan may eliminate your MIP and reduce your monthly payment significantly — even if the new interest rate is slightly higher than the current rate. Use the FHA Refinance Calculator to model the exact MIP savings from switching to conventional, or the Mortgage Savings Calculator for a general monthly savings comparison.
Frequently Asked Questions
What is PMI and who does it protect?
PMI is an insurance policy that protects your lender — not you — if you default. It is required on conventional loans with LTV above 80% (down payment less than 20%). The borrower pays the premium, but the benefit flows to the lender if a foreclosure sale doesn't cover the loan balance.
How much does PMI cost per month?
Typically 0.2% to 2.0% of the loan amount per year, depending on credit score and LTV. On a $350,000 loan, that's $58 to $583 per month. A borrower with good credit (740+) and 10% down will often pay in the 0.5%–0.8% range, or about $146–$233/month on a $350K loan.
When can I remove PMI?
You can request cancellation when your loan balance reaches 80% of the original purchase price with good payment history. The servicer must automatically cancel at 78% of the original value (based on the original schedule). You can accelerate removal with extra principal payments or via a new appraisal if your home's value has risen.
What is the difference between PMI and FHA MIP?
PMI applies to conventional loans and can be removed at 80% LTV. FHA MIP applies to FHA loans and, for loans originated after June 2013 with less than 10% down, cannot be cancelled — it stays for the life of the loan. The only exit is refinancing into a conventional loan with at least 20% equity.
Find out exactly when your PMI will end — or how extra payments can end it sooner