Private Mortgage Insurance: What You Pay, When You Can Stop, and How to Avoid It

What PMI is and why lenders require it

Private mortgage insurance (PMI) is a monthly fee you pay to your lender when you put down less than 20 percent on a home purchase. The insurance protects the lender, not you — if you stop paying the mortgage, the insurance covers part of the lender's loss. You pay for coverage that benefits someone else, which is why getting rid of it matters.

Lenders require PMI because a smaller down payment means higher risk. If you borrow 95 percent of the home's price and the market drops, the home may be worth less than you owe. PMI shifts that risk away from the lender and onto you, the borrower.

PMI is not the same as homeowners insurance, which protects your property from fire, theft, and weather. You need homeowners insurance no matter what your down payment was. PMI is purely about the lender's protection.

Key Takeaways

• PMI typically costs between 0.5 and 2 percent of your loan amount per year, split into monthly payments added to your mortgage bill.
• You can remove PMI once you reach 20 percent equity in your home, either through payments or home value increase.
• Some loans require PMI for the life of the mortgage; others allow you to request removal at 20 percent equity.
• Putting down 20 percent or more from the start is the only way to avoid PMI entirely.
• Refinancing into a new loan can drop PMI if your home has gained value or you can now afford a larger down payment.

How much PMI costs each month

PMI premiums vary by lender, loan type, credit score, and down payment size. A typical range is 0.5 to 2 percent of your loan amount per year. On a $300,000 loan, that translates to $1,500 to $6,000 per year, or $125 to $500 per month.

The smaller your down payment, the higher your PMI rate. A 5 percent down payment costs more than a 15 percent down payment on the same loan. Your credit score also matters — borrowers with scores below 620 pay higher premiums than those above 740.

Your lender will provide a Loan Estimate within three business days of your application. This document shows your estimated PMI payment alongside your principal, interest, taxes, and insurance. The PMI line item is where you see the actual dollar amount you will pay each month.

When you can remove PMI from your mortgage

The rules for removing PMI depend on your loan type. Conventional loans (not backed by the federal government) allow PMI removal once you reach 20 percent equity. FHA loans, VA loans, and USDA loans have different rules — some require PMI for the entire loan term, others allow removal only after 11 years of payments.

You reach 20 percent equity two ways: by paying down the principal, or by your home gaining value. If you bought for $300,000 and paid it down to $240,000, you have 20 percent equity. If you bought for $300,000 and it is now worth $375,000 while you still owe $300,000, you also have 20 percent equity.

With a conventional loan, you can request PMI removal once you hit 20 percent equity. Your lender is not required to remove it automatically — you have to ask. Some lenders will remove it at 20 percent; others require 22 percent as a buffer. Check your loan documents or call your servicer to find out the exact threshold.

If your home has gained value, you may need a new appraisal to prove it. Appraisals cost $300 to $500 and take one to two weeks. Your lender will tell you whether an appraisal is required before you request removal.

Strategies to drop PMI faster

The fastest way to reach 20 percent equity is to make extra principal payments. Every dollar you put toward principal (not interest) brings you closer to the PMI removal threshold. If you have a bonus, tax refund, or inheritance, putting it toward principal can shorten the timeline by months or years.

Ask your lender whether extra payments have any penalty. Most do not, but some loans charge a prepayment penalty in the first few years. Your Loan Estimate will state whether a penalty applies.

Refinancing is another option if your home has gained value or your credit score has improved significantly. A new loan with a larger down payment (using savings or home equity) can eliminate PMI immediately. Refinancing costs $2,000 to $5,000 in closing costs, so run the numbers: if you would pay $200 per month in PMI for five more years ($12,000 total), refinancing might make sense. If you would pay $200 per month for only one more year ($2,400 total), it probably does not.

How to avoid PMI from the start

The only way to avoid PMI entirely is to put down 20 percent or more at purchase. If you have saved $60,000 for a $300,000 home, you avoid PMI and save thousands over the life of the loan.

If you cannot save 20 percent, some programs offer down payment help that counts toward your 20 percent threshold. These vary by state and lender. A down payment assistance grant of $15,000 plus your own $15,000 savings gets you to 20 percent on a $300,000 purchase. Ask your lender or a local housing counselor whether programs exist in your area.

Another option is a piggyback loan, where you take out two mortgages at once — one for 80 percent of the price and a second for 10 or 15 percent. This avoids PMI but leaves you with two monthly payments and two sets of closing costs. Piggyback loans are less common now than they were before 2008, and rates on the second mortgage are usually higher than the first.

PMI on different loan types

Conventional loans allow PMI removal at 20 percent equity, as described above. FHA loans require mortgage insurance for the life of the loan if you put down less than 10 percent. If you put down 10 percent or more on an FHA loan, you can remove the insurance after 11 years of payments.

VA loans (for military members and veterans) do not require PMI at any down payment level, even 0 percent down. USDA loans (for rural homebuyers) also do not require PMI. If you are may be able to access for either program, you avoid PMI entirely.

If you have an FHA loan with less than 10 percent down and want to eliminate mortgage insurance, refinancing into a conventional loan is often the only path. This requires 20 percent equity and a decent credit score. Your lender can tell you whether refinancing makes financial sense for your situation.

Frequently Asked Questions

Can I pay PMI upfront instead of monthly?

Yes. Some lenders offer an upfront PMI payment, where you pay the entire insurance premium at closing instead of spreading it across monthly payments. This reduces your total interest paid over time but requires more cash at closing. Ask your lender for a comparison of upfront versus monthly PMI costs.

Does PMI go down as I pay off my mortgage?

No. PMI stays the same each month until you reach the removal threshold (usually 20 percent equity). It does not decrease gradually. Once you hit 20 percent equity, you request removal and it stops entirely.

What if I refinance and my new loan requires PMI again?

If you refinance with less than 20 percent equity, yes, PMI starts over on the new loan. This is why refinancing makes sense only if you have gained enough equity or saved enough to put down 20 percent on the new loan amount. Run the numbers with your lender before refinancing.

Do I need to do anything to remove PMI, or does the lender do it automatically?

You must request it. Lenders do not remove PMI automatically, even after you reach 20 percent equity. Contact your servicer (the company that collects your payments), provide proof of equity if required, and ask for removal in writing. Keep a copy of your request.

How do I know if my loan allows PMI removal?

Check your Loan Estimate and Closing Disclosure — both documents state the PMI terms. If you cannot find them, call your lender's customer service line and ask whether your loan allows PMI removal at 20 percent equity or whether it is required for the life of the loan.