Private Mortgage Insurance (PMI): What It Costs and How to Get Rid of It

If you buy a home with a conventional loan and put down less than 20 percent, your lender will typically require private mortgage insurance, commonly called PMI. This insurance protects the lender, not you, in case you stop making payments. While it adds to your monthly cost, PMI also makes it possible to buy a home sooner without waiting years to save a full 20 percent down payment.

The cost of PMI varies based on your down payment, credit score, and loan amount, but it is usually a fraction of a percent of the loan balance charged annually and split into monthly payments. Borrowers with stronger credit and larger down payments generally pay less. On most loans, PMI is included as a line item in your monthly mortgage payment.

The good news is that PMI is not permanent. Once you build enough equity in your home, you can request that it be removed. Under federal rules, your lender must automatically cancel PMI once your loan balance reaches 78 percent of the home’s original value, and you can request earlier cancellation when you reach 80 percent. Some homeowners reach that threshold faster through home value appreciation or by making extra principal payments.

If you are currently paying PMI or weighing how a smaller down payment affects your budget, it helps to understand exactly when and how you can drop it. Our team can review your loan, estimate your timeline to cancellation, and help you decide on the best strategy.