Private Mortgage Insurance (PMI): When It Starts and How to Drop It
PMI protects the lender, not you, and applies when you put less than 20% down. Learn what it costs, how it's priced, and the exact rules for canceling it.
By The RateFig Editorial Team · July 30, 2026 · reviewed against official mortgage and rate sources
Private mortgage insurance (PMI) is the fee you pay when you buy with less than 20% down on a conventional loan. Borrowers often resent it because it adds to the payment without protecting them. The good news: it is temporary and removable. This guide covers what it costs, how it is priced, and exactly when it ends.
Why PMI exists
Lenders take on more risk when you borrow more than 80% of the home's value. PMI shifts that risk to an insurance company so the lender can still approve the loan. You pay the premium; the coverage protects the lender. Because it is not for your benefit, the goal is to eliminate it as early as the rules allow.
How PMI is priced
PMI is typically quoted as an annual percentage of your loan balance, paid monthly. The rate rises with risk:
| Borrower profile | Approx. annual PMI | |------------------|--------------------| | Strong credit, 10% down (90% LTV) | ~0.2%–0.5% | | Average credit, 5% down (95% LTV) | ~0.5%–1.0% | | Lower credit, 3% down (97% LTV) | ~0.8%–1.5% |
Example. A $280,000 loan at 0.6% PMI costs about $1,680/year, or ~$140/month — real money that disappears once you hit the cancellation threshold.
The cancellation rules
| Trigger | What happens | |---------|--------------| | You reach 80% LTV and request it | Servicer must cancel if you are current and have a clean payment history; they may require a new appraisal | | Loan schedules to 78% LTV | Automatic termination under the Homeowners Protection Act | | Home value rises enough | You can request early cancellation with proof of value (appraisal) |
Note the split: request cancellation at 80%, automatic at 78%. Asking early can save a year or two of premiums.
Ways to avoid or shorten PMI
- Put 20% down — no PMI at all.
- Lender-paid MI — the lender covers PMI in exchange for a higher rate. Compare the lifetime cost.
- Piggyback loan — a small second mortgage funds part of the down payment so the first mortgage stays at 80% LTV. You pay interest on the second loan instead of PMI.
- VA loan — eligible veterans avoid PMI entirely with 0% down.
- Recast or pay down fast — extra principal payments build equity to the cancellation point sooner.
Once you cross ~20% equity, refinancing out of PMI is another route — model it with the refinance calculator so closing costs do not eat the savings.
Key Takeaways
PMI is a temporary cost of low-down-payment conventional loans, not insurance for you. It is cancelable at 80% LTV on request and must end at 78%. See how it changes your payment in the mortgage calculator, and read the PMI-removal guide before you over-pay a premium you could drop.
Frequently Asked Questions
What does PMI actually protect?+
PMI protects the lender if you default — not you. It lets lenders approve loans with less than 20% down by limiting their loss. You pay the premium, but the benefit flows to the lender, which is why removing it as soon as allowed is almost always in your interest.
How much does PMI cost per month?+
It is usually priced as an annual percentage of the loan balance, billed monthly, commonly in the range of ~0.2%–1.5% per year depending on your credit score and loan-to-value ratio. On a $280,000 loan, that can be roughly $60–$350 per month. The riskier the file, the higher the rate.
At what LTV can I cancel PMI?+
You can request cancellation once you reach 80% loan-to-value, provided you are current on payments, have a good payment history, and the loan is not a high-risk type. The servicer must automatically cancel PMI at 78% LTV (based on the original schedule) under the federal Homeowners Protection Act.
Can I avoid PMI without 20% down?+
Sometimes. Options include lender-paid mortgage insurance (the rate is higher instead), a piggyback loan (a second mortgage covering part of the down payment so the first stays at 80%), or a VA loan, which has no PMI. Each trades one cost for another, so compare the totals.
Does PMI ever drop off on its own?+
Yes. Even if you never ask, federal law requires automatic termination at 78% LTV on the original amortization schedule, and earlier if your home's value has risen enough to hit 78% on the current balance. Requesting it at 80% gets you there sooner.
Run the Numbers Yourself
Reading is the first step. The next is plugging your own numbers into a calculator that runs the same US-standard formulas in real time — no signup, no paywall, instant results.
See PMI in your payment→Key Takeaways
Use the calculator linked above to confirm how these concepts apply to your specific loan amount, rate, and term. Small changes in any one input can shift your monthly payment and total interest by thousands of dollars over the life of the loan.