What Is PMI and How Can You Avoid or Remove It?

If your down payment is less than 20 percent on a conventional loan, there’s a good chance you’re paying for private mortgage insurance, often without fully understanding what it covers or how long you’ll be stuck with it.

What PMI Actually Covers

Private mortgage insurance protects the lender, not you, in case you default on the loan. It’s the trade-off many borrowers accept in exchange for putting down less than 20 percent, allowing them to buy a home sooner rather than waiting years to save a larger down payment.

How Much Does PMI Cost?

PMI premiums typically range from about 0.3 percent to 1.5 percent of the loan amount per year, depending on your credit score, loan-to-value ratio, and loan type. On a $300,000 loan, that can mean anywhere from roughly $75 to $375 added to your monthly payment.

Ways to Avoid PMI From the Start

Putting down 20 percent or more eliminates PMI entirely on a conventional loan. Some lenders also offer piggyback loan structures or lender-paid mortgage insurance, which folds the cost into a slightly higher interest rate instead of a separate monthly charge.

How to Remove PMI Once You Have It

Federal law generally requires lenders to automatically cancel PMI once your loan balance reaches 78 percent of the home’s original value. You can also request cancellation earlier, once you reach 80 percent loan-to-value, or ask for a new appraisal if rising home values have boosted your equity faster than expected.

FHA Loans Work Differently

FHA loans use mortgage insurance premiums instead of PMI, and in many cases, these payments last for the life of the loan unless you refinance into a conventional mortgage once you’ve built enough equity.

Talk to a Lender About Your Options

Whether you’re trying to avoid PMI upfront or looking to remove it as soon as possible, a loan officer can walk you through the numbers and help you decide whether refinancing, extra payments, or a new appraisal makes sense for your situation.