How PMI works
When you put less than 20% down on a conventional loan, the lender considers you a higher risk. To protect themselves, they require private mortgage insurance. PMI does not protect you. It protects the lender.
PMI typically costs between 0.3% and 1.5% of the original loan amount per year, depending on your credit score and down payment. On a $400,000 loan, that is roughly $100 to $500 per month, on top of your mortgage payment.
How to get rid of PMI
There are three ways to remove PMI:
- Reach 78% loan-to-value. By law, your servicer must automatically cancel PMI when your loan balance reaches 78% of the original appraised value. You do not have to ask.
- Reach 80% loan-to-value. You can request cancellation when you reach 80% LTV, either through payments or appreciation. You may need an appraisal to prove the value.
- Refinance. If your home has appreciated significantly, a refinance at 20% equity removes PMI entirely. This is often the fastest path in a rising market.
How PMI is different on an FHA loan
FHA loans have a different insurance called mortgage insurance premium (MIP). MIP rules are stricter. In most cases, MIP stays for the life of the loan unless you put 10% or more down and refinance after 5 years. If you want PMI to come off, choose a conventional loan, not an FHA loan.
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