PMI is required on conventional loans with less than 20% down. Annual cost: 0.2%–1.5% of the loan balance. Federal law requires cancellation at 80% LTV.
Private mortgage insurance (PMI) is required by lenders on conventional loans when the down payment is below 20%. It protects the lender, not you. Annual premiums typically run 0.2%–1.5% of the loan balance. Under the Homeowners Protection Act, you can request cancellation at 80% LTV; your lender must cancel automatically at 78%.
Private mortgage insurance (PMI) is a policy lenders require on conventional mortgages when the borrower's down payment is less than 20% of the purchase price.
PMI is designed to protect the lender — not the borrower. If you default on the loan, the insurer reimburses the lender for a portion of their loss. You pay the monthly premiums, but the coverage runs in the lender's favor.
PMI exists because lenders treat loans above 80% loan-to-value (LTV) as riskier. Without insurance, most lenders would require 20% down for every conventional loan. With PMI in place, you can buy with 3%–19.9% down — at a cost you pay until you build enough equity.
Annual PMI premiums typically run 0.2%–1.5% of the original loan amount, billed monthly as part of your mortgage payment. Two main factors determine where you land in that range:
What PMI costs on a $400,000 loan:
| Annual Rate | Annual Cost | Monthly Cost | |---|---|---| | 0.5% | $2,000 | $167 | | 1.0% | $4,000 | $333 | | 1.5% | $6,000 | $500 |
PMI appears as a distinct line item on your loan estimate and closing disclosure — the federal disclosure forms required before closing. It is separate from homeowners insurance, property taxes, and any HOA fees.
This is where PMI becomes manageable: equity builds over time, and federal law requires it to go away. The Homeowners Protection Act gives borrowers three cancellation rights on most conventional loans:
1. Request cancellation at 80% LTV. Once your loan balance drops to 80% of the original purchase price — through regular principal payments, extra payments, or a combination — you can submit a written request to your servicer. Requirements typically include:
Your servicer may require an appraisal to confirm the property's current value hasn't fallen below the original purchase price.
2. Automatic cancellation at 78% LTV. If you don't request cancellation, the lender must cancel PMI automatically once the loan balance — per the original amortization schedule — reaches 78% of the original purchase price. This triggers on the scheduled payment date, not based on actual payment history. If you've made extra principal payments, you likely reached 80% first and qualify to request cancellation earlier.
3. Final termination at the loan's midpoint. As a backstop, PMI must terminate by the midpoint of your loan's amortization period regardless of LTV. On a 30-year mortgage, that is year 15.
These protections apply to most standard-risk conventional residential loans. High-risk mortgage classifications may have different rules — confirm with your servicer if unsure.
Refinancing to eliminate PMI. If your home has appreciated significantly since purchase, a new appraisal may show an LTV below 80% on the current value even if the original LTV was higher. Refinancing into a new conventional loan that reflects the higher value eliminates PMI on the new loan. Run the math: closing costs (typically 2%–5% of the loan amount) must be weighed against the monthly PMI savings and the rate on the new loan.
Put 20% down. No PMI required on conventional loans with a 20% down payment. The tradeoff is time: saving a larger amount delays purchase.
Piggyback loan (80-10-10). Structure the purchase as a first mortgage for 80%, a second loan for 10%, and a 10% cash down payment. Neither loan crosses the 80% LTV threshold, so PMI doesn't apply to either. The second loan carries a higher rate than the first — factor the full cost into the comparison against paying PMI.
Lender-paid PMI (LPMI). The lender pays the PMI premium in exchange for a higher interest rate on your loan. Your monthly payment may be lower, but the higher rate is permanent — you cannot cancel LPMI the way you can cancel standard PMI at 80% LTV. LPMI tends to make sense when you plan to sell or refinance before reaching 20% equity.
VA loans. Eligible veterans, active-duty service members, and surviving spouses can borrow with no PMI requirement and no minimum down payment through VA-guaranteed loans. A VA funding fee applies in most cases.
USDA loans. For qualifying borrowers in eligible rural areas, USDA loans carry a guarantee fee structure that typically costs less than conventional PMI and requires no down payment.
Both PMI and FHA's mortgage insurance premium (MIP) protect lenders against default losses. The difference is how long they last.
FHA loans carry two MIP components:
The critical distinction: for FHA loans with less than 10% down — which describes the majority of FHA purchases — the annual MIP stays for the life of the loan. It does not cancel when you reach 80% LTV the way conventional PMI does.
For a borrower holding a home 10+ years with normal appreciation, conventional PMI often produces lower total mortgage insurance cost than FHA MIP, even if the initial monthly payments are similar. The full cost comparison across credit score tiers and down payment scenarios is in the FHA vs. conventional loan decision framework.
PMI is the price of buying sooner without 20% down. On a $400,000 home at 5% down with 1% PMI, you're paying roughly $333/month in PMI — declining as your balance drops — until you reach 80% LTV.
Whether that's worth it depends on what the alternative looks like. Waiting to save a full 20% down payment on a $400,000 home means accumulating an additional $60,000 in savings. In markets with meaningful home appreciation, the purchase price may be $420,000–$440,000 by the time you've saved the larger amount — narrowing or eliminating the savings from avoiding PMI.
For how your credit score shapes your mortgage rate and PMI cost, see How Your Credit Score Affects Mortgage Qualification in 2026. For first-time buyer programs that minimize down payment requirements and PMI exposure, see Best Mortgages for First-Time Homebuyers 2026.
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This content is educational and does not constitute mortgage, insurance, or financial advice. Loan and insurance terms depend on your individual credit profile, property, lender, and local market. Consult a licensed mortgage professional before selecting a loan program.
No. PMI protects the lender, not the borrower. If you default, the insurer reimburses the lender for a portion of their loss. You still owe the remaining balance and face foreclosure proceedings regardless of PMI coverage.
The PMI deduction (treating mortgage insurance premiums as qualified residence interest) has not been renewed in recent tax legislation as of mid-2026. PMI premiums are generally not deductible for most taxpayers. Consult a tax professional about your specific situation.
The Homeowners Protection Act bases automatic cancellation on the original purchase price, not current market value. However, if appreciation has built substantial equity, refinancing into a new loan with an LTV below 80% eliminates PMI on the new loan — without waiting for the original amortization schedule. Weigh refinancing costs against monthly PMI savings before proceeding.
Contact your mortgage servicer in writing and request PMI cancellation. You'll need to document that your loan balance has reached 80% LTV based on the original purchase price, confirm you're current on payments, and verify there are no subordinate liens on the property. The servicer may require an appraisal to confirm property value hasn't declined below the original purchase price.
FHA loans use a mortgage insurance premium (MIP) rather than PMI. FHA MIP includes a 1.75% upfront charge plus an annual premium of 0.55% for most 30-year loans. The key difference: for FHA loans with less than 10% down, MIP stays for the life of the loan rather than canceling at 80% LTV the way conventional PMI does.