# What is private mortgage insurance? By Chelsea Levinson, JD | 2022-07-25 > Mortgage insurance is almost always paid by the buyer, but is intended to protect the lender in case a buyer stops making mortgage payments. A form of mortgage insurance is private mortgage insurance (PMI). If you’re putting down less than 20% on a conventional loan, you’ll likely need to pay for PMI. Thankfully, you can often drop PMI eventually, and you may even have options to avoid this monthly payment altogether. ## Key Takeaways ## Key takeaways - PMI protects the lender in case a buyer defaults. If a buyer puts down less than 20% on a conventional loan, they’ll likely need to pay for PMI. - The fee is usually between 0.5% and 1% of the loan amount annually. The cost is usually divided by 12 and added to your monthly mortgage payments.  - PMI cost can be affected by factors like credit score, loan amount, loan type, down payment amount, and which lender a buyer chooses.  - Usually, when a buyer reaches 20% equity on the property, they can often drop PMI. Otherwise the lender will **often** drop it automatically when the buyer reaches 22% equity.  - Some lenders allow flexible PMI options. In some cases, buyers may pay the policy in full upfront, or ask the lender to cover it in exchange for a higher interest rate. Some buyers may consider a second mortgage called a piggyback loan to make a 20% down payment and avoid PMI.  - Government-backed loans have their own unique mortgage insurance requirements. If you're buying a home with less than 20% down, there's an extra monthly cost you'll need to plan for: private mortgage insurance, commonly known as PMI. For the average homeowner, PMI can add anywhere from $30 to $300 or more per month to a mortgage payment — amounting to thousands of dollars over the life of the policy. The good news? PMI isn't permanent, and there are several strategies to avoid it, reduce it, or remove it altogether. Whether you're a first-time buyer [figuring out how much to save for a down payment](https://www.opendoor.com/articles/how-much-to-save-for-house) or a current homeowner wondering when you can cancel your PMI, this guide covers everything you need to know — including costs, removal rights under federal law, and the key differences between PMI and FHA mortgage insurance. Understanding PMI is an important part of [knowing how much it really costs to buy a house](https://www.opendoor.com/articles/how-much-does-it-cost-to-buy-a-house). Let's break it all down. [Get your offer](#) ## What Is PMI and How Does It Work? Private mortgage insurance (PMI) is a type of insurance policy that protects your **mortgage lender** — not you — if you stop making payments on your home loan. It's typically required on conventional mortgage loans when your down payment is less than 20% of the home's purchase price. PMI works by reducing the financial risk a lender takes on when approving a borrower with a smaller down payment. If a borrower defaults on the loan, the PMI provider reimburses the lender for a portion of the outstanding balance. Your PMI premium is typically rolled into your monthly mortgage payment alongside principal, interest, property taxes, and homeowners insurance. The cost is based on several factors, including the size of your down payment, your credit score, and your loan amount. ### Who Does PMI Protect? This is one of the most common misconceptions in real estate: **PMI protects your lender, not you as the homebuyer.** Unlike homeowners insurance — which covers damage to your property — PMI exists solely to shield the lender from losses if you default on your loan. So why would you agree to pay for insurance that doesn't benefit you directly? Because PMI is what makes it possible for lenders to offer mortgages to buyers who haven't saved a full 20% down payment. Without PMI, many lenders simply wouldn't approve these loans, and millions of buyers would be locked out of homeownership. Think of PMI as the cost of entry: it's the tradeoff that lets you buy a home sooner rather than waiting years to accumulate a larger down payment. ### When Is PMI Required? PMI is required on **conventional loans** (those not backed by a government agency) when your down payment is less than 20% of the home's purchase price. Put another way, PMI kicks in when your loan-to-value ratio (LTV) exceeds 80%. For example: - Buying a $350,000 home with 10% down ($35,000) = 90% LTV → **PMI required** - Buying a $350,000 home with 20% down ($70,000) = 80% LTV → **No PMI required** If you're wondering whether [5% is enough for a down payment](https://www.opendoor.com/articles/briefs/is-5-percent-enough-down-payment), the answer is often yes from a qualification standpoint — but you will pay PMI until you build sufficient equity. > **Key point:** PMI applies specifically to conventional loans. Government-backed loans like FHA loans have their own form of mortgage insurance called MIP (mortgage insurance premium), which works differently. We cover the PMI vs. MIP comparison later in this article. ## How Much Does PMI Cost? PMI typically costs between **0.22% and 2.25% of your original loan amount per year**, according to [Freddie Mac](https://www.freddiemac.com/blog/homeownership/20181005-understanding-private-mortgage-insurance). On a $300,000 loan, that translates to roughly **$55 to $563 per month** — a wide range that depends on your specific financial profile. Most borrowers with good credit and a 10% down payment can expect to pay somewhere in the range of 0.5% to 1% annually, but the exact rate varies significantly based on several factors. ### PMI Rate Ranges and What Affects Your Rate Your PMI rate isn't one-size-fits-all. Insurers assess your risk profile and set premiums based on: - **Credit score:** Borrowers with higher credit scores (740+) receive the lowest PMI rates. Scores below 680 can push rates toward the higher end of the range. - **Loan-to-value ratio (LTV):** The less you put down, the higher your PMI rate. A 3% down payment will cost significantly more in PMI than a 15% down payment. - **Loan type and term:** Fixed-rate loans generally carry lower PMI rates than adjustable-rate mortgages. - **Coverage level:** Lenders may require different coverage percentages (typically 25%–35% of the loan amount), which influences premium cost. - **Property type:** Single-family primary residences receive the most favorable rates compared to investment properties or multi-unit homes. ### PMI Cost Example: Monthly Payment Breakdown Let's walk through a concrete example to see how PMI affects your monthly payment. **Scenario:** You're buying a $300,000 home with a 10% down payment ($30,000), resulting in a $270,000 loan. | **PMI Rate** | **Annual PMI Cost** | **Monthly PMI Cost** | | 0.5% | $1,350 | **$112.50** | | 0.75% | $2,025 | **$168.75** | | 1.0% | $2,700 | **$225.00** | With a [30-year mortgage](https://www.opendoor.com/articles/real-estate-terms-you-should-know) at a 6.5% interest rate, your monthly principal and interest payment would be approximately $1,706. Add PMI at 0.75%, and your total monthly payment increases by nearly $169 — before property taxes and homeowners insurance. Over the years it takes to reach 80% LTV, that PMI cost can add up to **$8,000 to $15,000 or more** in total premiums. ### PMI Cost Comparison by Down Payment Amount The size of your down payment has a direct impact on both whether you need PMI and how much it costs. Here's how PMI costs compare across common down payment scenarios for a **$400,000 home** with an estimated PMI rate based on good credit (720+ score): | **Down Payment** | **Down Payment Amount** | **Loan Amount** | **Estimated PMI Rate** | **Monthly PMI Cost** | | 3% | $12,000 | $388,000 | ~1.10% | **$356** | | 5% | $20,000 | $380,000 | ~0.85% | **$269** | | 10% | $40,000 | $360,000 | ~0.55% | **$165** | | 15% | $60,000 | $340,000 | ~0.32% | **$91** | | 20% | $80,000 | $320,000 | None | **$0** | > **Tip:** Many lenders and third-party financial sites offer PMI calculators that let you estimate your specific PMI cost based on your credit score, loan amount, and down payment. Ask your lender for a Loan Estimate document, which will itemize your projected PMI payment. ## How to Avoid PMI Paying PMI isn't inevitable. If you'd rather avoid the extra monthly cost, there are several proven strategies — each with its own set of tradeoffs. ### Make a 20% Down Payment The most straightforward way to avoid PMI is to put at least 20% down on a conventional loan. With 20% equity from day one, your LTV starts at 80% or below, and no mortgage insurance is required. Of course, saving 20% is easier said than done — especially in competitive markets. On a $400,000 home, 20% means coming up with $80,000 before [closing costs](https://www.opendoor.com/articles/how-much-are-closing-costs-for-seller) and other buying expenses. For many buyers, waiting to save that much could mean years of renting while home prices continue to rise. **The tradeoff:** You avoid PMI entirely, but you may delay homeownership or drain your savings reserves. ### Choose a Lender-Paid PMI Option With lender-paid PMI (LPMI), your lender covers the mortgage insurance cost in exchange for charging you a **slightly higher interest rate** on your loan. You won't see a separate PMI line item on your monthly statement, but you'll pay more in interest over time. LPMI can make sense if you want to keep your monthly payment simpler or if the higher interest rate still results in a lower total monthly payment compared to borrower-paid PMI. However, because the higher rate is baked into your loan, **you can't cancel it** once PMI would otherwise be removable — unless you refinance. **The tradeoff:** No separate PMI payment, but a permanently higher interest rate unless you refinance. ### Use a Piggyback Loan (80-10-10) A piggyback loan — also called an 80-10-10 loan — involves taking out two loans simultaneously: - A **first mortgage** for 80% of the home's price - A **second mortgage** (usually a home equity loan or HELOC) for 10% - A **10% down payment** from your savings Because the first mortgage is at 80% LTV, no PMI is required. The second loan covers the gap between your down payment and the 20% threshold. **The tradeoff:** You avoid PMI, but the second loan often carries a higher interest rate. You're also managing two separate loan payments. ### Explore VA or USDA Loans If you're eligible, **VA loans** (for active-duty military, veterans, and eligible surviving spouses) and **USDA loans** (for buyers in qualifying rural areas) do not require any form of private mortgage insurance — even with 0% down. VA loans charge a one-time funding fee instead, and USDA loans include a guarantee fee, but neither requires ongoing monthly PMI payments. These programs represent some of the most affordable [paths to homeownership](https://www.opendoor.com/articles/briefs/how-long-does-it-take-to-buy-a-house) available. **The tradeoff:** Strict eligibility requirements. VA loans require qualifying military service; USDA loans have geographic and income restrictions. ## How to Remove PMI from Your Mortgage Here's the important thing to remember: **PMI is not permanent.** Once you've built enough equity in your home, you have the legal right to have it removed. Understanding when and how to remove PMI can save you thousands of dollars over the remaining life of your loan. ### Request PMI Cancellation at 80% LTV You can **request cancellation** of your PMI once your loan balance reaches 80% of your home's **original appraised value** (the value at the time of purchase). This is a borrower-initiated process — your lender won't do it automatically at this threshold. To qualify, you generally must: - Submit a **written request** to your loan servicer - Be **current on your mortgage payments** with a good payment history (no payments 30+ days late in the past 12 months, and no payments 60+ days late in the past 24 months) - Provide evidence that there are **no subordinate liens** (like a second mortgage or home equity line) on the property - Pay for a **new home appraisal** if your lender requires one to confirm the property's current value > **Pro tip:** Home appreciation can work in your favor. If your home's value has increased significantly since you purchased it, you may reach the 80% LTV threshold sooner than your original payment schedule projected. For example, if you bought a home for $350,000 and it's now worth $400,000, your effective LTV may already be at or below 80% — even if your original amortization schedule says otherwise. Wondering what your property is worth now? Here's [how to determine your home's value](https://www.opendoor.com/articles/how-to-determine-home-value). ### Automatic PMI Termination at 78% LTV Even if you never submit a cancellation request, your lender is **legally required** to terminate your PMI once your loan balance reaches **78% of the original purchase price** — provided you're current on your payments. This happens automatically based on your original amortization schedule, with no action needed on your part. There's also a **final termination date**: if your PMI hasn't been cancelled or terminated by the midpoint of your loan's amortization schedule (for example, year 15 of a 30-year mortgage), the lender must remove it at that point regardless of your LTV. ### The Homeowners Protection Act: Your Rights The rules governing PMI cancellation aren't just lender policies — they're **federal law**. The [Homeowners Protection Act (HPA) of 1998](https://www.consumerfinance.gov/ask-cfpb/when-can-i-remove-private-mortgage-insurance-pmi-from-my-loan-en-202/) established clear requirements for when and how PMI must be cancelled or terminated on residential mortgages. Under the HPA: - Lenders must **inform you at closing** about your PMI cancellation and termination rights - Lenders must provide **annual written disclosures** reminding you of your right to cancel PMI - Borrowers have the right to **request cancellation at 80% LTV** based on original value - PMI must be **automatically terminated at 78% LTV** based on the original amortization schedule - PMI must be **finally terminated** at the midpoint of the amortization period The HPA applies to residential mortgage loans closed on or after July 29, 1999. If your loan predates that, different rules may apply. ### Step-by-Step: How to Request PMI Removal Ready to get rid of your PMI? Follow this checklist: 1. **Check your current loan balance.** Review your most recent mortgage statement or log into your servicer's online portal to confirm your outstanding balance. 2. **Calculate your current LTV.** Divide your loan balance by your home's original appraised value (or current value if you plan to request an early removal based on appreciation). If it's at or below 80%, you may be eligible. 3. **Review your payment history.** Ensure you have no late payments in the last 12–24 months. 4. **Contact your loan servicer in writing.** Send a formal written request to cancel PMI. Include your loan number, current balance, and a statement requesting cancellation under the HPA. 5. **Order an appraisal if required.** Your servicer may require a [new home appraisal](https://www.opendoor.com/articles/home-appraisal-tips-and-what-is-home-appraisal-based-on) to verify your property's current value. Expect to pay $300–$600 for a standard appraisal, and understand [how long the appraisal process takes](https://www.opendoor.com/articles/how-long-does-an-appraisal-take). 6. **Confirm no subordinate liens exist.** If you have a HELOC or second mortgage, it could complicate or delay the process. 7. **Get written confirmation.** Once approved, request written confirmation from your servicer that PMI has been removed and verify the change on your next mortgage statement. **Timeline example:** If you bought a $400,000 home in 2025 with 10% down ($40,000), your starting loan balance is $360,000. Based on the original purchase price, 80% LTV = $320,000, and 78% LTV = $312,000. On a 30-year fixed mortgage at 6.5%, you'd reach 80% LTV in approximately **6–7 years** through regular payments alone — sooner if you make extra principal payments or if your home appreciates in value. ## PMI vs. MIP: Understanding the Difference If you're comparing conventional loans to FHA loans, you'll encounter two different types of mortgage insurance: **PMI** (private mortgage insurance) and **MIP** (mortgage insurance premium). While both serve the same purpose — protecting the lender — they work very differently in practice. Many first-time buyers consider FHA loans for their lower credit score requirements and smaller down payment minimums. But it's critical to understand that FHA mortgage insurance is significantly harder to remove than conventional PMI. ### Key Differences at a Glance | **Factor** | **PMI (Conventional Loans)** | **MIP (FHA Loans)** | | **Loan type** | Conventional | FHA | | **Upfront cost** | None (for borrower-paid PMI) | 1.75% of the loan amount (rolled into loan) | | **Annual cost range** | 0.22%–2.25% | 0.45%–1.05% | | **Removal** | Yes — at 80% LTV by request, 78% LTV automatically | No removal if down payment was <10%. After 11 years if down payment was ≥10% | | **Required when** | Down payment <20% | **All FHA loans**, regardless of down payment | | **Paid to** | Private insurance company | Federal Housing Administration | ### Can You Remove MIP from an FHA Loan? This is where the distinction really matters. For most FHA borrowers: - **If you put down less than 10%:** MIP lasts for the **entire life of the loan**. The only way to stop paying it is to refinance into a conventional loan. - **If you put down 10% or more:** MIP can be removed after **11 years** of payments. By contrast, PMI on a conventional loan can be cancelled as soon as you reach 80% LTV — which could be just a few years if your home appreciates quickly or you make extra payments. This is why **refinancing from an FHA loan to a conventional loan** is a common strategy for homeowners who have built at least 20% equity. By switching loan types, you can eliminate the ongoing MIP and potentially secure a better interest rate. Understanding [factors that influence your home's value](https://www.opendoor.com/articles/factors-that-influence-home-value) can help you determine whether refinancing makes financial sense. ## Lender-Paid PMI vs. Borrower-Paid PMI Not all PMI is structured the same way. The two most common arrangements are **borrower-paid PMI (BPMI)** and **lender-paid PMI (LPMI)**, and choosing the right one depends on your financial situation and how long you plan to stay in the home. There's also a third, less common option: **single-premium PMI**, where you pay the entire mortgage insurance cost as a lump sum at closing. This eliminates the monthly PMI payment altogether but requires a significant upfront cash outlay — typically 1% to 3% of the loan amount. ### When Lender-Paid PMI Makes Sense With LPMI, your lender absorbs the PMI cost but charges a higher mortgage interest rate to compensate. You won't have a separate PMI line item, but you'll pay more in interest every month — for the entire life of the loan (unless you refinance). **LPMI may be a good fit if:** - You want to **maximize your buying power** — because the monthly payment may be lower than BPMI even with the higher rate, you might qualify for a larger loan - You plan to **sell or refinance within 5–7 years** — in which case the higher interest charges may not accumulate enough to outweigh the PMI savings - You prefer **simplicity** in your monthly payment structure ### When Borrower-Paid PMI Is the Better Choice With BPMI, you pay a separate monthly PMI premium that shows as a distinct line item on your mortgage statement. The key advantage? **It can be cancelled** once you reach 80% LTV, at which point your monthly payment drops. **BPMI may be a better fit if:** - You plan to **stay in the home long-term** — once PMI drops off, you'll benefit from the lower base interest rate for potentially decades - You're **building equity quickly** through extra payments, home improvements, or market appreciation - You want the **ability to cancel** mortgage insurance rather than being locked into a higher rate > **Quick comparison:** On a $300,000 loan, BPMI at 0.65% adds about $163/month but can be cancelled. LPMI might increase your interest rate by 0.25%, costing roughly $62 more per month in interest — but that extra cost lasts the entire 30-year term, potentially totaling $22,000+ in additional interest if you never refinance. ## Is PMI Tax Deductible? The tax deductibility of PMI has had a complicated history. Congress has repeatedly extended and allowed the PMI deduction to expire over the past two decades. The deduction was most recently available through the 2021 tax year under provisions of the Consolidated Appropriations Act. **As of the 2025 and 2026 tax years**, the PMI deduction has not been renewed by Congress. This means most homeowners **cannot currently deduct PMI premiums** on their federal income tax returns. However, tax law changes frequently, and new legislation could reinstate the deduction. When it has been available in the past, it was subject to income limits — typically phasing out for taxpayers with adjusted gross income above $100,000 and fully eliminated above $109,000. ⚠️ **Disclaimer:** Tax laws change frequently and vary by state. Consult a qualified tax professional for advice specific to your situation and the most current IRS guidance. ## Frequently Asked Questions About PMI **Is PMI the same as homeowners insurance?** No. PMI (private mortgage insurance) protects your **lender** if you default on your mortgage. Homeowners insurance protects **you** against damage or loss to your property from events like fire, storms, or theft. Both may be required by your lender, but they serve entirely different purposes and are paid to different companies. **Do you get PMI money back?** In most cases, no. PMI premiums are not refundable. Once paid, those premiums belong to the insurance company. The exception is if you paid for single-premium PMI upfront at closing and cancel or refinance your loan within the first few years — some policies offer partial refunds in that scenario. Check your specific policy terms. **How long do you pay PMI?** You pay PMI until your loan balance reaches 80% of your home's original value (at which point you can request cancellation) or until it automatically terminates at 78% LTV. On a typical 30-year mortgage with 10% down, this could take approximately 6–9 years through regular payments — potentially sooner if your home appreciates or you make extra principal payments. **Does PMI protect the homebuyer?** No. This is a common misconception. PMI protects the **lender** against losses if the borrower defaults. The homebuyer pays the premiums but does not receive any direct insurance benefit. PMI indirectly benefits buyers by making it possible to purchase a home with less than 20% down. **Can you deduct PMI on your taxes?** The PMI tax deduction has historically been available but has expired and been renewed multiple times. As of 2026, the deduction is not active for most taxpayers. Check current IRS guidance or consult a tax professional for the latest information. **How much does PMI cost per month?** PMI typically ranges from 0.22% to 2.25% of your loan amount annually. On a $300,000 mortgage, that translates to approximately $55 to $563 per month. Your specific rate depends on your credit score, down payment, loan-to-value ratio, and other risk factors. **Can I avoid PMI with less than 20% down?** Yes, there are several strategies. You can use a piggyback loan (80-10-10), choose lender-paid PMI (which trades a separate premium for a higher interest rate), or explore loan programs like VA or USDA loans that don't require mortgage insurance. **What's the difference between PMI and MIP?** PMI applies to conventional loans and can be cancelled once you reach 80% LTV. MIP (mortgage insurance premium) applies to FHA loans, includes an upfront fee of 1.75% of the loan amount, and typically lasts the life of the loan if your down payment was less than 10%. Refinancing from an FHA loan to a conventional loan is the most common way to eliminate MIP. **Does PMI go down over time?** With borrower-paid PMI, your monthly premium generally stays the same until it's cancelled — it doesn't gradually decrease as your balance drops. However, your LTV improves with each payment, bringing you closer to the cancellation threshold. Some adjustable-rate PMI policies may change, so check your specific terms. **Can I remove PMI early if my home value increases?** Yes. If your home has appreciated significantly, you may be able to demonstrate that your current LTV is at or below 80% based on the home's new market value. You'll typically need to request a new [home appraisal](https://www.opendoor.com/articles/whats-your-home-worth-take-these-steps-to-find-out) and submit a formal cancellation request to your servicer. Some lenders require you to have owned the home for at least two years before they'll consider appreciation-based removal. [Get your offer](#) ## The Bottom Line Private mortgage insurance adds to your monthly housing costs, but it also makes homeownership possible for millions of buyers who haven't saved a full 20% down payment. The key is understanding how PMI works so you can make informed decisions — whether that means choosing the right PMI structure, building equity faster to cancel it sooner, or exploring loan programs that avoid it entirely. Here's what to remember: - **PMI protects your lender**, not you — but it enables you to buy sooner - **Costs range from 0.22% to 2.25%** of your loan amount annually, depending on your financial profile - **You can cancel PMI** once you reach 80% LTV, and your lender must remove it at 78% LTV under the Homeowners Protection Act - **PMI and MIP are not the same** — FHA mortgage insurance is much harder to remove - **Multiple avoidance strategies exist**, from larger down payments to piggyback loans to VA/USDA programs Whether you're just starting to explore the [home-buying process](https://www.opendoor.com/articles/how-to-determine-what-to-offer-on-a-house) or you're a current homeowner looking to lower your monthly payment by removing PMI, understanding your options puts you in control. Take the time to run the numbers, know your rights, and choose the approach that makes the most financial sense for your situation. --- *Originally published at [https://www.opendoor.com/articles/what-is-pmi](https://www.opendoor.com/articles/what-is-pmi)*