Private mortgage insurance (PMI) is a policy your lender requires when you put down less than 20% on a conventional loan. It protects the lender if you stop making payments. PMI typically costs between 0.46% and 1.5% of your loan amount per year. It’s not permanent, you can request that your loan servicer cancel PMI when your mortgage balance reaches 80% of the original value of the home and your lender must cancel it automatically at 78% under federal law.
Quick facts: Private Mortgage Insurance (PMI)
PMI is required by most lenders when your down payment is below 20% on a conventional loan. It protects the lender, not you, and costs 0.46% to 1.5% of your loan amount per year, depending on your credit score and LTV ratio. You can request cancellation once you reach 20% equity (80% LTV). Your lender must cancel it automatically at 78% LTV under federal law. FHA loans have Mortgage Insurance Premium (MIP) instead of PMI. Unlike PMI, MIP stays for the life of the loan if you put less than 10% down. VA loans have no PMI or MIP, only a one-time funding fee.
How does PMI affect my monthly mortgage payment?
PMI is an additional cost added to your monthly mortgage payment, generally ranging from 0.46% to 1.5% of your loan amount per year. For a $450,000 loan, this means PMI could range from $1,350 to $6,750 annually, or approximately $172.50 to $562.50 per month. This calculator from SmartAsset allows you to play around with how your interest rate, as well as your homeowner’s insurance and other fees will influence your monthly payment.
What are the different types of PMI?
PMI comes in a few varieties:
- Borrower-Paid PMI (BPMI): You pay it monthly with your mortgage payment.
- Single Premium PMI: Pay it all upfront when you close. Ouch, but no monthly charges.
- Split Premium PMI: A combo of upfront and monthly payments.
- Lender-Paid PMI (LPMI): The lender covers it, but your interest rate goes up.
Do FHA and VA loans have PMI?
FHA and VA loans come with their own version of mortgage insurance, and the rules are different enough that they’re worth understanding before you choose a loan type.
FHA loans use Mortgage Insurance Premium (MIP) instead of PMI. MIP has two parts: an upfront premium of 1.75% of the loan amount, paid at closing, and an annual premium that gets divided across your monthly payments. The annual MIP rate typically runs between 0.45% and 1.05% depending on your loan term, loan amount, and down payment.
If you put down less than 10% on an FHA loan, MIP stays for the life of the loan. There is no cancellation threshold. The only way to get rid of it is to refinance into a conventional loan once you’ve built enough equity. If you put down 10% or more, MIP falls off after 11 years.
This is one of the most practical reasons to compare FHA and conventional loans side by side before you commit. A first-time buyer with a 620 credit score might qualify for both, but if they’re putting down 5%, the FHA MIP stays with them for 30 years unless they refinance. The right choice depends on the rate difference and how long they plan to stay.
VA loans are different entirely. If you qualify, there’s no PMI and no MIP, just a one-time funding fee that gets rolled into the loan. For most first-time VA borrowers with no down payment, that one-time fee is 2.15% of the loan amount.
Why do PMI costs range?
- Loan-to-Value Ratio (LTV): The higher the LTV (the size of your loan compared to the value of your home), the higher the PMI rate. A higher risk of default generally leads to higher PMI costs.
- Credit Score: Your credit score impacts the PMI rate. A lower credit score can lead to higher PMI rates because it signals higher risk to the lender.
- Loan Type: Different types of loans may have different PMI rates. Conventional loans often have PMI rates based on risk, while other types of loans might have different structures.
- Down Payment Amount: The size of your down payment influences the PMI cost. Larger down payments reduce the amount of PMI needed, as they decrease the loan’s risk.
- Loan Term: The length of your mortgage can affect PMI rates. Longer terms might have different PMI costs compared to shorter terms.
- Lender’s Policies: Each lender has its own criteria for determining PMI rates, which can lead to variations in costs across different lenders.
PMI and your rights under the Homeowners Protection Act
Most borrowers don’t know that federal law requires your lender to cancel Private Mortgage Insurance (PMI) automatically once your loan balance drops to 78% of the original purchase price. This is not a lender courtesy. It’s a legal requirement under the Homeowners Protection Act of 1998.
There are actually two distinct thresholds to know. At 80% LTV (20% equity), you have the right to request cancellation in writing. Your servicer may ask you to confirm the property value hasn’t declined and that your payment history is clean, but they cannot keep charging you indefinitely once you hit this mark. At 78% LTV, cancellation is automatic, your servicer must drop PMI on the date your amortization schedule reaches that balance, even if you never ask.
One important caveat: the 78% threshold is calculated against your original purchase price, not the current market value of your home. If your home has appreciated since you bought it, you may be able to reach 20% equity based on current value before your loan balance hits that 78% mark, but to use appreciation as the basis for early cancellation, you’ll need a new appraisal and most lenders require at least two years of on-time payments first.
Can I get rid of PMI?
Yes, and there are three ways it can happen, each with different requirements.
Request cancellation at 80% loan-to-value ratio (LTV). Once your loan balance reaches 80% of the original purchase price (meaning you have 20% equity), you can submit a written request to your servicer to cancel PMI. Your servicer may require confirmation that your property value hasn’t declined and that you have a clean payment history, but they cannot deny a valid request that meets these conditions. This threshold is based on the original purchase price, not the current market value of your home.
Automatic cancellation at 78% LTV. Under the Homeowners Protection Act, your lender is legally required to cancel PMI automatically when your loan balance reaches 78% of the original purchase price, no request needed. This happens on the date your regular amortization schedule hits that balance. If you’ve been making only your standard monthly payment, your servicer is tracking this and must act without you prompting them.
Early cancellation based on appreciation. If your home has gone up in value, you may be able to reach 20% equity before your loan balance gets there on its own. Most lenders will consider this, but the bar is higher: you typically need to have made payments for at least two years, and you’ll need to pay for a new appraisal to document the current value. Check with your servicer for their specific LTV requirement before ordering an appraisal.
How home value changes can impact PMI
The table below illustrates how home value changes impact when you can ditch PMI. If your home value goes up, like from $250,000 to $275,000, you quickly build equity and can drop PMI sooner. This saves you money and cuts down your payments faster.
But if your home value drops, like from $250,000 to $230,000, you have less equity, which means you’ll be stuck with PMI longer. So, higher home values mean quicker PMI removal, while lower values keep you paying PMI until you either build more equity or home values rise again.
| Scenario | Initial home value | Down payment | Initial mortgage balance | Current home value | Current Mortgage Balance | Current equity | Equity percentage |
| Home value increases | $250,000 | $25,000 (10%) | $225,000 | $275,000 | $210,000 | $65,000 | 23.6% |
| Home value decreases | $250,000 | $25,000 (10%) | $225,000 | $230,000 | $215,000 | $15,000 | 6.5% |
What documentation do I need for PMI removal?
To get rid of PMI, you’ll need:
- Proof your home’s value (think appraisal)
- Evidence you’ve got at least 20% equity
- Documentation showing you’ve made your mortgage payments on time
How long does the PMI removal process take?
Be prepared for a bit of a wait. Once you’ve submitted your request and paperwork, it could take a few weeks to several months. If an appraisal is needed, add some extra time to the mix.
Is PMI at some lenders higher than others?
While PMI is typically not something borrowers shop for directly, the cost of PMI can vary between lenders and loan programs. Some lenders use different PMI providers, which can affect the price. Additionally, PMI costs are influenced by factors like your credit score, loan-to-value ratio, and loan term. At Tomo Mortgage, we work with multiple PMI companies, so we can offer you some discounts.
Can I to shop around for PMI?
Private Mortgage Insurance (PMI) isn’t something you can shop for like a new TV or a car. It’s insurance that protects the lender, not you. Here’s how it works: your lender will gather quotes from different PMI providers and choose the one offering the lowest monthly premium. Once you’ve got PMI, the rate is fixed and won’t fluctuate for the duration of your loan.
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