What Is Private Mortgage Insurance (PMI)?

Private mortgage insurance (PMI) is an insurance policy you pay on a conventional loan when your down payment is less than 20% of the home’s value, protecting the lender if you default. PMI typically costs 0.5% to 1.5% of your loan amount per year, added to your monthly payment. Unlike FHA mortgage insurance, PMI can be removed once you build enough equity.

On a $300,000 loan with 5% down ($285,000 financed), PMI at 0.8% annually would cost $2,280 per year, or $190 per month added to your mortgage payment. Once your loan balance drops to 80% of the home’s original value—$240,000 in this case—you can request PMI cancellation. By law, your lender must automatically cancel PMI when your balance reaches 78% of the original value.

Key Facts

• Typical annual cost: 0.5%–1.5% of the loan amount
• Trigger: Required when down payment is below 20% on conventional loans
• Borrower-requested removal: Available at 80% loan-to-value ratio
• Automatic cancellation: Required by law at 78% loan-to-value ratio

Frequently Asked Questions

How is PMI different from FHA mortgage insurance (MIP)?

PMI applies only to conventional loans and can be canceled once you reach 20% equity. FHA MIP applies to FHA loans and, if you put less than 10% down, lasts the entire life of the loan. PMI rates are also generally lower than FHA annual MIP rates for borrowers with good credit.

Can you avoid PMI without putting 20% down?

Some lenders offer lender-paid mortgage insurance (LPMI), where a slightly higher interest rate replaces the separate PMI payment. You can also use a piggyback loan strategy—financing 80% with a first mortgage and 10% with a second mortgage—to avoid PMI with only 10% down.