What Is PMI?

What Is PMI?

PMI stands for private mortgage insurance. It protects the lender -- not the borrower -- if the borrower defaults on the loan. PMI is required on conventional loans when the down payment is less than 20%, meaning the loan-to-value ratio exceeds 80%.

How Much Does PMI Cost?

PMI typically costs between 0.5% and 1.5% of the loan amount per year, charged as a monthly premium. On a $350,000 loan, PMI might cost between $146 and $438 per month. The exact rate depends on your credit score, loan-to-value ratio, and the insurer's pricing.

What PMI Costs Over Time

On a $300,000 home with 5% down ($285,000 loan, 95% LTV), PMI at 0.85% runs about $201.88/mo. Paying down to 80% LTV through amortization alone at 6.75%/30yr takes about 127 months (10.6 years) -- roughly $25,600 in total PMI paid if you simply wait it out.

When Does PMI Go Away?

Under the Homeowners Protection Act of 1998, lenders must automatically cancel PMI when your loan balance reaches 78% of the original purchase price, based on the original amortization schedule. You can request cancellation earlier when your balance reaches 80% LTV, based on the original value or a new appraisal showing increased value.

FHA Mortgage Insurance vs. PMI

FHA loans require mortgage insurance premium (MIP) rather than PMI. For FHA loans with a down payment below 10%, MIP stays for the life of the loan -- unlike conventional PMI, it does not cancel automatically at 80% LTV. This is a key reason some borrowers choose conventional loans over FHA when they qualify.

Common PMI Mistakes

Waiting passively for automatic cancellation. As shown above, relying on amortization alone can take over a decade -- you can request cancellation yourself at 80% LTV.

Not requesting a new appraisal after values rise. A new appraisal might already show 80% equity even if the loan balance hasn't changed much.