PMI Explained: What It Costs and When It Ends

What PMI is, and who it protects

Private mortgage insurance is insurance on a conventional loan. According to the CFPB, it protects the lender, not you, if you stop making payments, and it does not prevent foreclosure. Lenders may require it when your down payment is less than 20% of the purchase price. It can help you qualify for a loan you otherwise would not get, but it raises the cost. The premium can be paid monthly, as a one-time amount at closing, or as a mix of both, and it is listed on the Loan Estimate and Closing Disclosure.

The CFPB also notes that smaller-down-payment loans without PMI usually have a higher interest rate, so avoiding the premium is not always free. This is a trade-off between a visible monthly line item and a less visible higher rate.

A worked example: $400,000 home at four down payments

The table compares the same $400,000 home at a 6.5% fixed rate over 30 years. The mortgage insurance rate used here is a placeholder, 0.75% of the loan per year at 5% down. Real premiums vary, so treat the dollar totals as an illustration of scale. "Months of PMI" is the number of months until the balance falls to 80% of the original price ($320,000), assuming scheduled payments only.

At 5% down and an illustrative 0.75% annual premium, PMI would be $2,850 a year, or $237.50 a month. Over the 124 months it takes to reach 80% of the price, that is about $29,450 in premiums. At 10% down and a lower illustrative 0.5% rate, the premium would be $150 a month for 95 months, about $14,250. Stretching to 20% down removes the premium entirely but needs $60,000 more cash than 5% down, which is money you could have kept in reserve or invested. Whether that is a good trade depends on what else the money would do, which is exactly the kind of question the rent vs. buy calculator can help you explore by changing the down payment percentage.

When PMI can end

For most single-family primary residences with loans closed on or after July 29, 1999, the CFPB describes these rules (FHA and VA loans have different requirements):

• You can ask for cancellation at 80%. You can request in writing that your servicer cancel PMI when your balance is scheduled to reach 80% of the original value of the home, or earlier if extra payments get you there. You generally need a good payment history, to be current, to certify there are no junior liens, and to show the home's value has not fallen below its original value, often with an appraisal. The original value is generally the lower of the contract price or the appraised value at purchase.
• It must end automatically at 78%. Your servicer must end PMI when the scheduled balance reaches 78% of the original value, if you are current on payments.
• It must end at the midpoint. PMI must end the month after the midpoint of the loan's amortization schedule, which is after 15 years on a 30-year loan, even if the balance has not reached 78%, again if you are current.

Investor guidelines can allow earlier cancellation but cannot be less favorable to you than these rules. Note that the 80% request is the one you control: if you wait for automatic termination you may pay for a year or more longer than necessary. The calculators on this site use the 80% point as a simple stopping rule, which is slightly earlier than the 78% automatic date.

How to lower or avoid PMI

1. Compare lenders. Premium quotes differ with credit score, down payment and loan type, and the Loan Estimate shows the cost.
2. Ask how a larger down payment, even 10% instead of 5%, changes both the premium and the rate.
3. Ask whether paying the premium up front, monthly, or a mix is better for your plans. Paying up front costs cash now, and you should ask whether any of it is refundable if you sell or refinance early.
4. Make extra principal payments early in the loan if PMI is a large cost, because each dollar brings the 80% date closer.
5. If your home has risen in value, ask your servicer what they require, such as a new appraisal, to cancel based on current value, since the rules above refer to original value and servicer or investor policies may differ.

Is paying PMI ever a good idea?

It can be. If the alternative is renting for five more years while saving, and home prices or rents rise in the meantime, paying PMI for a few years may cost less than waiting. If it means draining your savings to the last dollar, it may not. Keep a cash reserve after closing (see the buying costs checklist) and check that the all-in payment still fits your budget with the debt-to-income calculator.

Methodology and sources

Principal and interest use the standard fixed-payment formula. The month counts come from stepping the loan balance forward month by month at 6.5% until it is at or below 80% of $400,000. Premium totals are the monthly premium multiplied by the number of months and assume no refinance and no extra payments.

Sources: CFPB, What is private mortgage insurance? (protects the lender, may be required under 20% down, payment options, higher rates without PMI); CFPB, How do I get rid of PMI? (80% request, 78% automatic termination, midpoint rule, original value); CFPB, Loan Estimate explainer (mortgage insurance typically required with under 20% down). The 0.5% and 0.75% annual premium rates are assumptions made for illustration, not published prices.

Limitations and assumptions

This is general education and not financial or legal advice. The rules above describe a typical conventional loan; your loan type, servicer and state may add details. Government-backed loans use different mortgage insurance rules, and this page does not cover them. Check your own loan documents and ask your servicer before relying on any date.