PMI Explained: What It Costs and How to Remove It

What Is PMI?

Private Mortgage Insurance (PMI) is insurance required by conventional mortgage lenders when your down payment is less than 20% of the home's purchase price. PMI protects the lender — not you — against loss if you default on the loan. Despite only benefiting the lender, the borrower pays the premium.

How Much Does PMI Cost?

PMI typically costs 0.5-1.5% of the original loan amount per year, paid monthly. Factors that affect PMI cost include:

• Loan-to-value ratio (higher LTV = higher PMI)
• Credit score (lower scores pay more)
• Loan type and term
• Coverage percentage required

Example: On a $350,000 loan with 10% down ($315,000 loan amount), PMI at 0.7% costs approximately $184/month.

How to Remove PMI

Automatic termination: Lenders must cancel PMI when your LTV reaches 78% based on the original purchase price and amortization schedule.

Request cancellation at 80% LTV: You can request PMI removal when you reach 80% LTV based on the original value. You must be current on payments with no late payments in the past 12 months.

New appraisal: If your home has appreciated significantly, request a new appraisal to prove your LTV is below 80%. Some lenders allow this after 2 years with 75% LTV, or immediately at 80% with substantial improvements.

Refinance: If you have 20% equity, refinancing into a new loan eliminates PMI entirely.

PMI Alternatives

Lender-Paid MI (LPMI): The lender pays PMI but charges a higher interest rate. Cannot be removed.

Piggyback loan (80-10-10): Put 10% down, get an 80% first mortgage (no PMI) and a 10% second mortgage (HELOC). The HELOC rate is higher but may be less than PMI.

VA loan: No PMI regardless of down payment amount.