Private Mortgage Insurance (PMI)
PMI is the insurance that lets you buy with less than 20 percent down on a conventional loan. Here is what it is, what it costs you in practice, and how it goes away.
What PMI is and why it exists
Private mortgage insurance protects the lender, not you, if a loan defaults. In exchange for that protection, lenders can approve conventional loans with down payments well below 20 percent. That trade is the whole point: PMI is not a penalty, it is the price of buying years sooner than saving a full 20 percent would allow.
For many buyers, especially in a market where home prices rise while they save, paying PMI to buy now is the better math. Whether that is true for you is exactly the kind of question to put to us directly.
How you pay it
The most common structure is a monthly premium added to your mortgage payment. There are alternatives: single-premium PMI paid once at closing, lender-paid PMI traded for different loan pricing, and split structures in between. Each fits a different situation, and the premium itself varies with your down payment, credit profile, and loan details.
Your Loan Estimate shows the exact premium for your loan before you commit, so you will never be guessing at the number.
How PMI ends
PMI on a conventional loan is temporary, and federal law sets the rules. You can request cancellation once your loan balance reaches 80 percent of the home's original value, provided your payments are current. The lender must automatically end it once the balance reaches 78 percent. Making extra principal payments moves those dates up.
If your home's value has risen substantially, a new appraisal can also support earlier removal. And refinancing out of PMI is sometimes the right move, though it depends on the pricing environment when the time comes.
PMI versus FHA mortgage insurance
PMI applies to conventional loans. FHA loans carry their own mortgage insurance premium, with an upfront portion and a monthly portion, and the rules for when it ends are different.
Unlike conventional PMI, FHA mortgage insurance usually doesn't just fall off automatically. It comes down to how much you put down. If your down payment was less than 10%, the mortgage insurance stays for the life of the loan, and the only way to get rid of it is to refinance out of the FHA loan (often into a conventional loan once you have enough equity). If you put down 10% or more, the insurance drops off automatically after 11 years. Because most FHA buyers put down the minimum 3.5%, refinancing is typically the path to removing it.
Which structure costs less over your ownership horizon depends on your credit, your down payment, and how long you keep the loan. As a broker we can price both paths side by side and show you the comparison.
Related: Conventional Mortgages · FHA Loans · VA Loans
Private Mortgage Insurance questions we hear most
Is PMI always required with less than 20 percent down?
Not always. Lender-paid PMI (LPMI) is when the lender covers the mortgage insurance premium for you instead of you paying it as a separate monthly line item. In exchange, they build the cost into your loan by giving you a slightly higher interest rate, usually somewhere around a quarter to half a percent more. So your monthly payment can end up lower than it would be with regular monthly PMI, since you're not paying that separate premium, but you're trading it for a rate that stays with you the whole time you have the loan. The main tradeoff: unlike borrower-paid PMI, LPMI can't be canceled once you hit 20% equity. The only way to lower that rate is to refinance.
How much is PMI?
It depends on your down payment, credit profile, and loan details, so there is no honest one-size answer. Your Loan Estimate states the exact premium for your loan, and we will show you the figure before anything is final.
Can I cancel PMI early?
Yes. Once your balance reaches 80 percent of the home's original value and your payments are current, you can request cancellation. Extra principal payments or a documented rise in your home's value can get you there sooner.
Is it better to wait and save 20 percent?
Sometimes, but not as often as people assume. While you save, prices and rents move too. The comparison worth making is the full cost of buying now with PMI against the full cost of waiting, and we can run both scenarios with your real numbers.
Questions about your own file? Ask us directly.
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