What Is PMI? Private Mortgage Insurance Costs How to Remove

Private mortgage insurance (PMI) is insurance that protects the lender, not you, against the risk of default on a conventional loan made with a smaller down payment. If you put down less than 20% on a conventional mortgage, PMI is generally required, and it stays on the loan until specific loan-to-value (LTV) thresholds are met — thresholds that are actually federal law, not just lender discretion.

Why PMI Exists

Conventional loans backed by Fannie Mae or Freddie Mac generally require PMI whenever the loan-to-value ratio — the loan amount divided by the home's value — exceeds 80%. Above that threshold, the lender sees meaningfully higher default risk, since there's less equity cushion protecting them if the borrower stops paying and the home has to be sold in foreclosure. PMI compensates the lender for that added risk; it does nothing to protect the borrower's own equity or payment obligation.

How Much PMI Actually Costs

PMI is typically charged as an annual percentage of the loan amount, commonly somewhere in the range of 0.2% to 2%, split into monthly payments added to your mortgage payment. The exact rate depends primarily on your credit score, your LTV ratio, and the loan amount — a lower credit score or a higher LTV generally means a higher PMI rate.

A Worked Example

Say you buy a $350,000 home with a 10% down payment ($35,000), financing the remaining $315,000 — a 90% LTV loan.

At a representative 0.6% annual PMI rate for this LTV and credit profile:

Annual PMI cost: $315,000 × 0.6% = $1,890

Monthly PMI cost: $1,890 ÷ 12 = $157.50

That $157.50 gets added on top of your regular monthly principal-and-interest payment for as long as PMI remains required.

The Federal Law Behind PMI Removal: The Homeowners Protection Act

Before 1999, PMI cancellation was largely up to individual lender policy, and borrowers sometimes struggled to get PMI removed even after building meaningful equity. The Homeowners Protection Act (HPA) changed that by creating two specific, legally defined removal mechanisms.

Borrower-requested cancellation at 80% LTV. Once your loan balance is scheduled to reach 80% of the home's original value — generally the lesser of the purchase price or the appraised value at closing — you have the right to request PMI cancellation in writing, provided you're current on payments and meet any additional conditions your servicer discloses, such as a clean payment history and, in some cases, a new appraisal.

Automatic termination at 78% LTV. Regardless of whether you ever request anything, your servicer is required to automatically terminate PMI once your loan balance is scheduled to reach 78% of the original value, as long as you're current on your payments at that point.

There's also a midpoint rule: if you're current on payments, PMI must be terminated at the midpoint of your loan's amortization schedule (month 180 of a standard 30-year loan) regardless of what LTV you've actually reached by that point — a backstop specifically for borrowers who might otherwise fall behind the standard 78%/80% timeline due to an interest-only period or similar structure.

Continuing the Worked Example: When Does PMI Actually Go Away?

Using the $315,000 loan above at a 6.5% rate over 30 years, with a monthly principal-and-interest payment of about $1,991:

Reaches 80% LTV (eligible for borrower-requested cancellation): around month 95, roughly 7.9 years in

Reaches 78% LTV (automatic termination): around month 109, roughly 9.1 years in

Over those first 109 months, this borrower would pay approximately $17,168 in cumulative PMI premiums before automatic termination kicks in — money that, notably, builds no equity and serves no purpose for the borrower once the lender's risk has sufficiently declined.

Ways to Remove PMI Faster Than the Default Schedule

Extra principal payments. Since both thresholds are based on your loan balance relative to original value, paying down principal faster than the standard amortization schedule reaches both the 80% and 78% marks sooner than the timeline above assumes.

A new appraisal showing increased value. If your home's value has risen since purchase — through market appreciation or renovations — your current LTV may already be below 80% even though your original-value LTV hasn't reached that point on paper yet. Many servicers allow a borrower-requested reappraisal specifically to demonstrate this and request earlier cancellation, sometimes for a few hundred dollars in appraisal cost.

Refinancing. If home values have risen enough, or you've paid down enough principal, refinancing into a new loan without PMI (because the new loan's LTV is under 80%) is another path — though refinancing comes with its own closing costs and resets the loan's amortization clock, so it's worth weighing against simply waiting for automatic termination if that date isn't far off.

An Important, Very Recent Tax Update

For several years, PMI premiums weren't deductible on federal taxes at all — the itemized deduction for mortgage insurance premiums had expired after the 2021 tax year. That changed under 2025's H.R. 1 (the One Big Beautiful Bill Act): the deduction for PMI premiums was reinstated starting with the 2026 tax year for borrowers who itemize deductions. If you're paying PMI in 2026 and you itemize, it's worth factoring that reinstated deduction into your actual after-tax cost of carrying PMI, since it meaningfully changes the math compared to the several prior years when no such deduction was available.

PMI vs. MIP: Not the Same Thing

PMI applies specifically to conventional loans. FHA loans use a different, similarly-purposed charge called MIP (mortgage insurance premium), and the removal rules are notably different: MIP on an FHA loan with less than 10% down generally lasts for the life of the loan, with no LTV-based cancellation point at all. Only FHA loans with at least 10% down have a defined MIP cancellation point (11 years). Refinancing into a conventional loan is the more common way FHA borrowers eventually eliminate MIP if their loan doesn't qualify for its own cancellation.

Exceptions: High-Risk Loans

The HPA's specific 80%/78% mechanics don't apply the same way to loans classified as "high-risk" — a designation tied to factors like the loan amount relative to conforming loan limits or lender-specific risk criteria. High-risk loans are still subject to eventual termination requirements under the Act, just on a different schedule (based on actual LTV reaching 77%, rather than the standard borrower-request/automatic-termination structure) — worth checking your specific loan's classification if your PMI hasn't followed the standard timeline described above.

Frequently Asked Questions

Does PMI protect me if I can't make my payments?

No. PMI protects the lender's financial interest if you default — it has no effect on your obligation to repay the loan or your risk of foreclosure. Separate products, like mortgage life or disability insurance, are what protect a borrower's payments in the event of death or disability.

Can my lender refuse to cancel PMI once I hit 80% LTV?

Generally not, as long as you meet the conditions the HPA and your servicer's disclosed requirements set out — current payment history and, in some cases, a satisfactory appraisal. Servicers have faced regulatory scrutiny specifically for failing to honor these requirements, so a documented, in-writing request is worth keeping if you have to escalate.

Is PMI the same on every conventional loan?

No — the rate depends on your credit score, down payment/LTV, and loan amount, so two borrowers with the same loan amount can pay meaningfully different PMI costs based on their credit profile.

Does making extra payments toward principal help remove PMI faster?

Yes. Since the cancellation and termination thresholds are based on your loan balance reaching specific percentages of the original value, extra principal payments accelerate reaching both the 80% and 78% marks compared to the standard amortization schedule.

Is PMI ever a good deal despite the extra cost?

It can be, situationally — PMI is often what allows a borrower to buy sooner with a smaller down payment rather than waiting years to save 20%, and it's a temporary, removable cost rather than a permanent one. Whether that trade-off makes sense depends on comparing the cost of PMI against the opportunity cost of delaying a purchase while home prices and rates are uncertain.

Key Takeaways

PMI is required on most conventional loans with less than 20% down, protecting the lender rather than the borrower, and it's removable under specific federal rules rather than left entirely to lender discretion: borrower-requested cancellation at 80% LTV, automatic termination at 78% LTV, and a midpoint backstop regardless of LTV — all under the Homeowners Protection Act.

Extra principal payments or a reappraisal showing increased home value can accelerate PMI removal well ahead of the standard schedule, and for 2026 specifically, the reinstated federal tax deduction for PMI premiums is a detail worth factoring into the real cost of carrying it while it lasts.

Sources

This article is for general educational purposes only and does not constitute financial, investment, tax, or legal advice.

Last updated: September 2026