What Is PMI? | MyLoanCalcs.com

What Is PMI (Private Mortgage Insurance)?

Quick Answers

PMI cost range

0.5-1.5% of loan/yr

PMI removed at

20% equity

Auto-cancel at

22% equity (by law)

Avg. PMI cost

$50-$200/month

private mortgage insurance (PMI) is a type of insurance policy that you may be required to pay for if you take out a conventional mortgage with a down payment of less than 20%. The primary purpose of PMI is to protect the lender -- not you -- in case you default on your loan payments.

PMI is typically added to your monthly mortgage payment as a recurring premium. On average, the cost of PMI ranges from 0.5% to 1.5% of the original loan amount per year. The exact cost depends on your credit score and the size of your down payment.

The good news is that PMI is not permanent. Once you have built up enough equity in your home -- usually when your loan-to-value (LTV) ratio reaches 80% you can request your lender to remove the PMI, which immediately reduces your monthly housing costs.

Key Facts

When It's Required: Lenders almost universally require PMI when your down payment on a conventional loan is less than 20% of the home's purchase price.
Cost Range: Expect to pay an annual premium of 0.5% to 1.5% of your loan amount, divided into your monthly mortgage payments.
Who It Protects: PMI safeguards the lender's financial interests against borrower default, though the borrower pays the premiums.
How to Remove It: You can request PMI cancellation when your equity reaches 20%. It is automatically terminated when equity reaches 22%.

What PMI Actually Costs Over Time

$300,000 home, 5% down ($285,000 loan, 95% LTV), PMI at 0.85%/yr: $201.88/mo

Paying down to 80% LTV through amortization alone (6.75%, 30yr): ~127 months (10.6 years)

Total PMI paid if you wait for amortization alone: roughly $25,600

That's the cost of doing nothing. Making extra principal payments, or requesting a new appraisal after your home appreciates, can both get you to 80% LTV years earlier -- cutting that $25,600 total substantially.

Common PMI Mistakes

Waiting passively for automatic cancellation: As the example shows, relying on amortization alone to reach 80% LTV can take over a decade. You can request cancellation yourself once you hit 80% -- you don't have to wait for the lender's automatic 78% cutoff.
Not requesting a new appraisal after home value increases: If your area's home values have risen, a new appraisal might already show you above 80% equity, even though your loan balance hasn't changed much. Many homeowners pay PMI for years longer than necessary simply because they never asked.

Frequently Asked Questions

How much does PMI cost per month?

PMI typically costs 0.5%-1.5% of the original loan amount per year, divided into monthly payments. On a $300,000 loan, that is roughly $125-$375 per month.

How do I get rid of PMI?

You can request PMI removal when your loan balance reaches 80% of the original home value. Lenders must automatically cancel it at 78%. A new appraisal showing higher value can also accelerate removal.

Is PMI the same as homeowners insurance?

No. Homeowners insurance covers damage to your property. PMI protects the lender -- not you -- if you default on your mortgage. Both are typically required but serve entirely different purposes.

Can I avoid PMI without 20% down?

Yes. Some lenders offer lender-paid PMI (built into a higher rate), piggyback loans (80-10-10 structure), or special programs for first-time buyers that waive PMI requirements.