What Is PMI and How Do You Avoid It?

Private mortgage insurance — PMI — is one of the most misunderstood line items on a new homeowner's monthly statement. If you are putting less than 20% down on a conventional loan, your lender will almost certainly require it. That charge often adds $100 to $300 or more per month, yet it protects the lender, not you. This guide explains what PMI is, how it differs from FHA mortgage insurance, what it costs, and the concrete steps to avoid or remove it.

What Is PMI and Why Do Lenders Require It?

PMI is an insurance policy that reimburses your lender if you stop making mortgage payments and they take a loss on foreclosure. When you put down less than 20%, the lender carries more risk — a smaller equity cushion means less protection if home values fall or you default. PMI offsets that risk so lenders can offer conventional financing with down payments as low as 3%.

Critically, PMI does not protect you as the homeowner. It does not prevent foreclosure, cover your payments if you lose your job, or shield your credit if you fall behind. You pay the premium every month, but the coverage benefits only the lender. That is why experienced buyers treat PMI as a temporary cost to plan around — not a permanent part of homeownership.

How Much Does PMI Cost?

PMI premiums typically range from 0.3% to 1.5% of the original loan amount per year, paid monthly. On a $350,000 home with 5% down ($332,500 loan), PMI at 0.8% annually works out to roughly $222 per month. Put 10% down instead and that same rate drops to about $189 per month on a $315,000 loan. Borrowers with lower credit scores and smaller down payments land at the higher end of the range — often $250 to $300 or more per month on larger loans.

Over the first five years of homeownership, PMI can easily total $8,000 to $15,000 — money that builds no equity and provides no direct benefit to you. That is why your true monthly housing cost includes PMI alongside principal, interest, taxes, and homeowners insurance. Use our Monthly Payment Calculator to model PITI with PMI at your down payment level, and read our guide on how to calculate your mortgage payment for a full PITI breakdown.

PMI vs FHA Mortgage Insurance (MIP)

FHA loans are popular for low down payments — as little as 3.5% — but FHA mortgage insurance works differently from conventional PMI. FHA charges an upfront premium at closing (typically 1.75% of the loan amount, often rolled into the balance) plus an annual premium paid monthly. If you put less than 10% down, FHA MIP usually lasts for the life of the loan — you cannot remove it simply by reaching 20% equity. Put 10% or more down and MIP cancels after 11 years.

Conventional PMI, by contrast, can be removed once you hit 20% equity — making it a temporary cost for most borrowers who buy with 5–15% down. If your goal is to eliminate insurance as quickly as possible, a conventional loan with cancellable PMI may cost less long-term than FHA MIP that never goes away. Compare both paths in our FHA loan requirements guide and down payment guide.

How to Remove PMI Once You Have Enough Equity

The good news: PMI on conventional loans is not forever. Federal law gives homeowners clear paths to cancellation once sufficient equity is built.

Request Cancellation at 20% Equity

You can request PMI removal in writing once your loan balance reaches 80% of the original property value — assuming you are current on payments. If home values have risen, you may qualify based on a current appraisal showing 20% equity, though lenders often require you to have held the loan for at least two years.

Automatic Termination at 22% Equity

Under the Homeowners Protection Act, lenders must automatically cancel PMI when your loan balance falls to 78% of the original property value — assuming payments are current. On a 30-year fixed loan with no extra payments, that milestone typically arrives around year 10 to 12, depending on your interest rate.

Refinance to Eliminate PMI

If your home has appreciated and you now have 20% equity, refinancing into a new conventional loan without PMI can eliminate the cost entirely — even without a large rate drop. On a $350,000 home, removing $175/month in PMI saves $2,100 per year. See our guide on when to refinance for break-even analysis.

Strategies to Avoid PMI Entirely

The most straightforward way to skip PMI is putting 20% down. On a $400,000 home, that means $80,000 at closing — a significant hurdle for many buyers, especially first-timers. If 20% is out of reach, consider these alternatives.

Piggyback Loans (80-10-10 or 80-15-5)

A piggyback structure splits financing into two loans: a first mortgage for 80% of the price and a second mortgage or home equity line for the remaining down payment gap. Because the first lien stays at 80% LTV, no PMI is required. The trade-off is a second loan with its own rate, often higher than the first mortgage.

Lender-Paid Mortgage Insurance (LPMI)

Some lenders offer LPMI, where they pay the insurance premium upfront in exchange for a slightly higher interest rate. You will never see a separate PMI line item, but you may pay more in interest over the life of the loan. Run the numbers carefully — LPMI can cost more than standard PMI if you plan to stay in the home long-term.

VA Loans — No PMI Ever

Eligible veterans using VA loans avoid monthly PMI entirely, regardless of down payment. On a $350,000 loan with 5% down, conventional PMI typically runs $150 to $200 per month — costs VA borrowers never pay. Use our First-Time Homebuyer Calculator to compare loan paths if you are weighing FHA, conventional, and VA options.

This guide is for educational purposes only and is not financial, tax, or legal advice. PMI costs, removal rules, and loan program details vary by lender and change over time. Consult a licensed mortgage professional before making borrowing decisions.