What is PMI? Private mortgage insurance and how to drop it

Private mortgage insurance (PMI) is insurance that protects your lender, not you, if you stop making payments on a conventional mortgage. Lenders usually require it when you put down less than 20% of the home’s purchase price.

PMI makes it possible to buy with a smaller down payment, but it adds to your monthly housing cost. Federal law lets you cancel it once you’ve paid your loan down far enough, and in most cases it ends on its own.

Key takeaways

• PMI protects the lender if you default on a conventional loan. It doesn’t protect you, and you can still lose your home to foreclosure if you fall behind.
• Lenders usually require PMI when your down payment is less than 20% of the price, or when you refinance with less than 20% equity.
• Freddie Mac estimates PMI typically costs about $30 to $70 a month for every $100,000 you borrow.
• You can ask to cancel PMI when your balance reaches 80% of the home’s original value. It generally ends automatically at 78% if you’re current on payments.
• FHA loans use a different kind of mortgage insurance with its own rules, and on many FHA loans it lasts for the life of the loan.

How private mortgage insurance works

What PMI covers and who it protects

Your lender arranges PMI, and a private insurance company provides it. If you stop paying and the lender loses money on the loan, the insurer covers part of that loss. PMI doesn’t pay your mortgage if you lose your job, and it doesn’t stop a foreclosure. It also isn’t homeowners insurance, which covers damage to your house and belongings.

Because the insurer takes on some of the risk, lenders are willing to make conventional loans with smaller down payments. That can help you qualify for a loan you might not otherwise get, but it raises the cost of borrowing.

When lenders require PMI

PMI applies to conventional loans, meaning mortgages that aren’t insured or guaranteed by a government agency. Lenders usually require it when your down payment is less than 20% of the purchase price, or when you refinance with less than 20% equity. FHA loans carry their own mortgage insurance, covered below, and VA loans follow separate rules.

Some lenders offer low-down-payment conventional loans without a separate PMI charge. In exchange, you usually pay a higher interest rate, which can cost more or less than PMI depending on how long you keep the loan.

How much PMI costs

Typical PMI costs

Freddie Mac estimates that PMI typically costs about $30 to $70 a month for every $100,000 borrowed. Where you land in that range depends on factors such as your down payment, your credit history and the size and type of loan.

Because the lender requires it, mortgage insurance counts as part of the finance charge on your loan. That means it’s reflected in the annual percentage rate (APR) on your Loan Estimate, which helps when you compare offers with and without PMI.

An example of a PMI payment

Suppose you buy a $300,000 home with 10% down. You put down $30,000 and borrow $270,000. Using Freddie Mac’s range of $30 to $70 per $100,000, your PMI would be roughly $81 to $189 a month.

On your Loan Estimate and Closing Disclosure, a monthly premium appears on page 1 in the Projected Payments section. It’s added to your mortgage payment, and many servicers collect it through the same escrow account that pays your property taxes and homeowners insurance.

Ways to pay for PMI

Lenders may offer more than one way to pay:

• Monthly premium. The most common option, added to each mortgage payment.
• Single up-front premium. You pay it at closing, and it appears on page 2 of your Loan Estimate and Closing Disclosure, in section B. If you move or refinance soon after, you might not get any of it back.
• Up-front and monthly premiums. A payment at closing plus a monthly charge.

Ask your loan officer to show the total cost of each option over time frames that are realistic for you.

When PMI goes away

The Homeowners Protection Act sets the rules for ending PMI on single-family homes that are your main residence, for loans that closed on or after July 29, 1999. It gives you three ways out: asking to cancel, automatic termination and a final cutoff at the loan’s midpoint.

In these rules, “original value” generally means the lower of the contract sales price or the appraised value when you bought the home. If you refinanced, it means the appraised value at the time of the refinance.

Asking your servicer to cancel PMI at 80%

You have the right to ask your servicer to cancel PMI on the date your principal balance is scheduled to fall to 80% of the home’s original value. That date should appear on the PMI disclosure you received with your mortgage. You can also ask sooner if extra payments bring your balance down to 80% ahead of schedule.

Your servicer must grant the request if you:

• Make the request in writing
• Have a good payment history and are current on your payments
• Can certify that there are no junior liens, such as a second mortgage or home equity line of credit
• Can show, if the servicer asks, that your home’s value hasn’t fallen below its original value, for example with an appraisal

Automatic termination at 78%

Even if you never ask, your servicer generally must end PMI on the date your balance is scheduled to reach 78% of the original value, as long as you’re current on your payments. If you’re behind on that date, PMI ends on the first day of the month after you catch up.

This automatic date is based on your original payment schedule. Extra payments can help you reach the 80% cancellation point sooner, but you still have to ask for cancellation in that case.

Final termination at the loan’s midpoint

If PMI hasn’t ended by then, it must stop the month after you reach the midpoint of the loan’s amortization schedule, as long as you’re current. On a 30-year loan, that’s after 15 years. This rule matters most for loans with interest-only periods, principal forbearance or balloon payments, where the balance may fall slowly.

Once PMI is canceled or terminated, your servicer can’t require premium payments more than 30 days later, and it must return any unearned premiums within 45 days. Loans that were classified as high risk when they were made can follow different cancellation timelines, but PMI on those loans still has to end at the midpoint.

An example timeline

Go back to the $270,000 loan on a $300,000 home. With a 30-year fixed rate of 6.5%, the principal and interest payment is about $1,707 a month.

• The balance is scheduled to reach $240,000, or 80% of the original value, after 95 payments. That’s just under eight years.
• It’s scheduled to reach $234,000, or 78%, after 109 payments, about nine years in.
• If you paid an extra $200 a month toward principal, you’d reach $240,000 after 58 payments, just under five years, and could ask to cancel then.

Your own dates depend on your rate, loan amount and any extra payments, so check your PMI disclosure or ask your servicer.

Dropping PMI early based on your home’s current value

The federal rules above use your home’s original value. If your home has gained value, or you’ve made major improvements, you may be able to end PMI sooner under the rules of whoever owns your loan. Loan investors such as Fannie Mae and Freddie Mac set their own cancellation guidelines, which can’t be less favorable to you than federal law.

For example, Fannie Mae’s servicing rules let borrowers with a one-unit main home or second home ask to end PMI based on current value when:

• The loan is between two and five years old and the balance is 75% or less of the current value, or
• The loan is more than five years old and the balance is 80% or less of the current value.

If improvements you made increased the home’s value, Fannie Mae may waive the two-year waiting period, but the balance must be 80% or less of the current value. You also need an acceptable payment record: no payment 30 or more days late in the past 12 months and none 60 or more days late in the past 24 months. Expect the servicer to require a new valuation, such as an appraisal.

Ask your servicer who owns your loan and what its rules are. Refinancing into a new conventional loan with at least 20% equity is another route, though it comes with closing costs and a new rate.

PMI vs. FHA mortgage insurance

FHA loans don’t use PMI. Instead, you pay a mortgage insurance premium (MIP) to the Federal Housing Administration. Most borrowers pay an up-front premium as well as an annual one, and the annual premium often lasts much longer than PMI.

Under the premium schedule HUD set in 2023, most FHA loans carry an up-front premium of 1.75% of the base loan amount. For loans longer than 15 years with a base amount at or below the national conforming loan limit, the annual premium is 0.50% of the loan if you put down at least 5%, or 0.55% if you put down less.

How long you pay depends on your starting loan-to-value ratio. If you put down 10% or more, the annual premium lasts 11 years. If you put down less than 10%, it lasts for the full mortgage term. The Homeowners Protection Act’s 78% rule doesn’t apply to FHA loans, so on those loans, refinancing into a loan without mortgage insurance is the usual way to stop paying it.

Feature	Conventional PMI	FHA mortgage insurance
Who provides it	Private insurer, arranged by your lender	Federal Housing Administration
Up-front cost	Only if your plan includes one	1.75% of the base loan amount on most loans
Ongoing cost	Varies; Freddie Mac estimates $30 to $70 a month per $100,000	0.50% or 0.55% a year on most loans longer than 15 years
When it ends	Cancel at 80%, automatic at 78%, final at midpoint	11 years with 10% or more down; otherwise the life of the loan

Using the same $270,000 loan on an FHA basis, the up-front premium would be $4,725, and a 0.50% annual premium would start at about $113 a month.

PMI and your taxes

Starting with the 2026 tax year, federal law again treats qualifying mortgage insurance premiums as deductible mortgage interest if you itemize. The deduction shrinks once your adjusted gross income passes $100,000 ($50,000 if married filing separately) and is gone entirely above $109,000 ($54,500). A tax professional can tell you whether it applies to you.

Frequently asked questions

What does PMI mean on a mortgage?

PMI stands for private mortgage insurance. Lenders usually require it on conventional loans when you put down less than 20%. It protects the lender if you stop making payments, and you pay for it, usually as part of your monthly mortgage payment.

How much is PMI on a $300,000 house?

It depends on how much you borrow and your credit profile. With 10% down, you’d borrow $270,000. Freddie Mac’s estimate of $30 to $70 a month per $100,000 borrowed puts PMI at roughly $81 to $189 a month. Your lender’s quote will give the exact figure.

Is it better to put 20% down or pay PMI?

There’s no single right answer. Putting 20% down avoids PMI and may get you a lower rate, but it takes more cash and possibly years of saving. Paying PMI lets you buy sooner with less saved, at a monthly cost you can usually remove later. Compare the total cost of each path, including a lender-paid option or an FHA loan, over the years you expect to keep the loan.

When does PMI go away automatically?

Your servicer generally must end PMI on the date your balance is scheduled to reach 78% of your home’s original value, if you’re current on payments. If that hasn’t happened by the midpoint of your loan term, PMI must end the following month. You can ask to cancel earlier, once your balance reaches 80%.

Can you remove PMI if your home’s value has gone up?

Possibly. Federal rules use your home’s original value, but loan owners such as Fannie Mae allow cancellation based on current value if you meet their equity, loan age and payment history requirements. You’ll usually need a new appraisal.

Is PMI the same as homeowners insurance?

No. PMI protects the lender if you default on your loan. Homeowners insurance protects you against covered damage to your home and belongings and against liability claims. Lenders generally require homeowners insurance for as long as you have a mortgage, while PMI applies only to some conventional loans with less than 20% down.