PMI: When It Applies and How to Remove It

What PMI is and why lenders require it

PMI protects the lender, not you. If you default on a loan where you put down less than 20%, the lender's risk is higher because they financed more than 80% of the home's value. PMI covers that gap. You pay the premium; the lender gets the protection.

PMI is required on conventional loans with a loan-to-value (LTV) ratio above 80%. If you buy a $340,200 home with 10% down ($34,020), your loan is $306,180 and your LTV is 90%. PMI applies until your LTV drops to 78–80%, either through principal payments or appreciation.

FHA loans have a similar insurance called MIP (Mortgage Insurance Premium), which has different rules — it often lasts for the life of the loan. VA and USDA loans don't require PMI but have their own guarantee fees.

How much PMI costs

PMI rates depend on your credit score, down payment amount, and loan type. Typical ranges:

• 0.3%–0.5% of the loan annually for borrowers with excellent credit (760+) and 10–15% down.
• 0.5%–0.8% for borrowers with good credit (700–760) and 5–10% down.
• 0.8%–1.5% for borrowers with fair credit (620–700) or less than 5% down.
• On a $306,000 loan (10% down on a $340,200 home) at 0.5%: $1,530/year or $127.50/month. At 1.0%: $3,060/year or $255/month.

When PMI ends automatically

For conventional loans, the Homeowners Protection Act of 1998 requires lenders to automatically cancel PMI when your LTV reaches 78% of the original home value — based on the original amortization schedule, not appreciation. This happens automatically; you don't need to request it.

On a $306,000 loan at 7% for 30 years, the balance reaches 78% of the original value ($267,636) at about month 110 — roughly 9 years. That's 9 years of PMI payments at $127–255/month, totaling $13,716–27,540.

You can also request PMI cancellation at 80% LTV. If your home has appreciated, you can get a new appraisal to show the LTV has dropped below 80% faster. This is one of the strongest reasons to track your home's value.

How to remove PMI early

There are three ways to remove PMI before the automatic 78% cancellation:

• Request cancellation at 80% LTV — when your loan balance reaches 80% of the original value, you can request PMI removal. The lender must comply if you have a good payment history.
• Get a new appraisal — if your home has appreciated, a current appraisal can show your LTV is below 80%. On a $340,200 home that's now worth $400,000, a $306,000 loan is only 76.5% LTV. The appraisal costs $300–600 but can save thousands in PMI.
• Refinance — if rates have dropped and your LTV is below 80%, refinancing into a new loan without PMI eliminates it. This only works if the refinance math makes sense (see our refinance guide).

PMI vs. the cost of waiting to save 20%

Some buyers wait years to save a 20% down payment to avoid PMI. On a $340,200 home, 20% is $68,040. If you can save $1,000/month, it takes 68 months — nearly 6 years. During those 6 years, home prices may rise and rates may change.

Alternatively, buy now with 10% down ($34,020) and pay PMI of ~$150/month. Over 5 years (until you reach 80% LTV), that's $9,000 in PMI. If the home appreciates 3%/year, it's worth $394,400 in 5 years, and your LTV is well below 80% — PMI is gone.

The math often favors buying sooner with PMI rather than waiting. But it depends on your local market, how fast you can save, and whether home prices are rising. Use the mortgage calculator to see your payment with and without 20% down.

FHA MIP: a different animal

FHA loans have Mortgage Insurance Premiums (MIP) instead of PMI. For loans with less than 10% down, MIP lasts for the life of the loan — it never automatically cancels. For loans with 10%+ down, MIP can be removed after 11 years.

FHA MIP includes an upfront premium (1.75% of the loan, often financed into the loan) plus an annual premium (0.15–0.75% depending on loan term and LTV). On a $306,000 FHA loan: upfront MIP of $5,355 + annual MIP of about $1,530/year ($127.50/month).

If you have an FHA loan and want to remove MIP, refinancing to a conventional loan (once your LTV is below 80%) is the primary path. The refinance calculator can help you decide if the savings justify the closing costs.