What Is PMI and How Do You Get Rid of It?
What Is PMI and How Do You Get Rid of It?
Private mortgage insurance is an extra monthly cost that protects your lender — not you — when you put less than 20% down. Here’s what it costs, how it works, and exactly how to eliminate it.
What Is PMI?
Private mortgage insurance (PMI) is insurance that protects the lender if you default on your mortgage. It is required on conventional loans when your down payment is less than 20% of the home’s purchase price — in other words, when your loan-to-value (LTV) ratio is above 80%.
PMI does not protect you as the borrower. If you default and the home sells at a loss, PMI reimburses the lender for the shortfall. From your perspective, PMI is simply an added monthly cost you pay until you reach 20% equity.
PMI vs. MIP: PMI applies to conventional loans. FHA loans use mortgage insurance premiums (MIP), which work differently and are harder to remove. This article focuses on PMI on conventional loans.
How Much Does PMI Cost?
PMI rates vary based on your credit score, loan-to-value ratio, loan size, and lender. Typical ranges:
- 760+ credit score: 0.20%–0.50% annually
- 700–759 credit score: 0.50%–0.80% annually
- 640–699 credit score: 0.80%–1.20% annually
- Below 640: 1.20%–1.50%+ annually
On a $350,000 loan at 0.70% annually, PMI adds about $204/month to your payment. Over 5 years before it cancels, that’s $12,240 — which is why understanding how to remove it promptly matters.
Use our mortgage payment calculator to estimate your full payment including PMI.
How PMI Is Paid
Most borrowers pay PMI as a monthly premium added to their mortgage payment. There are two alternative structures worth knowing:
- Single-premium PMI: Pay the entire PMI cost upfront at closing. This eliminates the monthly charge but requires cash at closing and is non-refundable if you sell or refinance early.
- Lender-paid PMI (LPMI): The lender pays the PMI premium in exchange for a slightly higher interest rate. Your monthly payment may be lower, but the higher rate stays for the life of the loan — even after 20% equity is reached.
When Does PMI Cancel Automatically?
Federal law (the Homeowners Protection Act of 1998) requires lenders to automatically cancel PMI in two situations:
- At 78% LTV: When your loan balance reaches 78% of the original purchase price (not current value), based on your scheduled amortization, lenders must automatically cancel PMI. You don’t need to request this.
- At the midpoint of the loan term: If you have a 30-year mortgage, PMI must cancel at year 15 regardless of your equity level.
The key phrase is “original purchase price.” If your home has appreciated significantly, the automatic cancellation is still based on the original value — which means you may reach 20% equity based on current value long before the automatic cancellation triggers.
How to Request Early PMI Cancellation
At 80% LTV based on the original purchase price, you can request PMI cancellation. Here’s the process:
- Contact your loan servicer in writing to request cancellation
- Your account must be current — no late payments in the past 12 months
- The lender may require proof that your property value hasn’t declined (usually a BPO or appraisal at your expense)
- Some lenders require you to have held the loan for at least 2 years before allowing early cancellation based on original value
How to Remove PMI Using Appreciation
If your home has appreciated since purchase, you may reach 20% equity (80% LTV) based on current value much sooner than scheduled amortization would suggest. Here’s how to use appreciation to remove PMI early:
- Get a current appraisal or your lender’s own property valuation
- If your current LTV is below 80% based on current value, request PMI cancellation
- Most lenders require the loan to be at least 2 years old before approving appreciation-based cancellation; some require 5 years if LTV is between 75–80%
- You’ll typically pay $400–$700 for an appraisal — worth it if your PMI is $150+ per month
See our full guide on how to remove PMI for step-by-step instructions for your specific loan servicer.
Refinancing to Remove PMI
If your home has appreciated significantly and current rates are favorable, refinancing may accomplish two goals at once: locking in a better rate and eliminating PMI by refinancing at or below 80% LTV based on the new appraised value.
However, refinancing has costs — typically 2–3% of the loan amount in closing costs. Use our refinance calculator to determine whether the savings justify the cost, and how long the break-even period is.
FHA MIP vs. Conventional PMI
If you have an FHA loan, your mortgage insurance works differently and is harder to remove:
- FHA loans originated after June 2013 with less than 10% down carry MIP for the entire loan term
- The only way to remove FHA MIP is to refinance into a conventional loan
- FHA MIP includes both an upfront premium (1.75%) and an annual premium (currently 0.55%)
For FHA borrowers who have built significant equity through appreciation or payments, refinancing to conventional to remove MIP is a common and financially smart move — assuming your credit and income qualify.
The Bottom Line
PMI is not permanent — it’s a temporary cost you pay until you reach 20% equity. Understanding when it cancels automatically and how to proactively request removal can save you thousands. If you’re unsure where you stand, contact your loan servicer and ask for your current LTV and the date PMI is scheduled to cancel. You may be able to remove it sooner than you think.
Questions about PMI removal or whether refinancing makes sense for your situation? Speak with a mortgage advisor at no cost.
