Private mortgage insurance, or PMI, is a premium your lender charges when you put less than 20% down on a conventional home loan. It protects the lender if you stop paying, not you. Premiums typically run between about 0.46% and 1.50% of the original loan amount per year, driven mostly by your credit score and down payment. Federal law gives you the right to cancel PMI on a primary residence once you build enough equity, and a written request at the right moment is often what separates borrowers who stop paying on time from those who pay for months longer than they had to.
What PMI Actually Covers
PMI reimburses the lender for part of the unpaid balance if your loan goes into foreclosure. It is not homeowners insurance, which covers damage to the property itself. You pay the premium; the insurer pays your lender if things go wrong.
That protection is what lets lenders approve borrowers who haven’t saved a full 20% down payment. Without it, most conventional lenders would turn those applications down because the risk of loss on a low-equity loan is too high. The trade-off is straightforward: you pay a recurring cost for coverage that benefits someone else, and knowing when you can stop is where the money is.
When Lenders Require It
The trigger is the loan-to-value ratio, which divides your loan amount by the home’s appraised value. If your down payment is under 20% on a conventional loan, your LTV is above 80% and PMI is mandatory. A buyer putting $40,000 down on a $400,000 home has a 90% LTV and will pay PMI until the ratio drops below the threshold, either by paying down principal or through appreciation.
PMI applies only to conventional loans. FHA, VA, and USDA mortgages carry their own government-backed insurance charges with different rules and different exit points, so the guidance below does not transfer to those loans.
How Much It Costs
Your rate depends mostly on your credit score and LTV. According to the Urban Institute’s Housing Finance Policy Center, annual premiums as a percentage of the original loan amount fall roughly in these bands:
- 760 or above: around 0.46%
- 740–759: around 0.58%
- 720–739: around 0.70%
- 700–719: around 0.79%
- 680–699: around 0.98%
- 660–679: around 1.23%
- 640–659: around 1.31%
- 620–639: around 1.50%
On a $350,000 loan, that spread works out to roughly $1,610 to $5,250 a year, or about $134 to $438 a month. A few months spent lifting your score before you apply can move you a tier or two and save real money over the years you carry the policy.
A few other factors move the rate. Fixed-rate mortgages generally price lower than adjustable-rate loans because payment stability reduces default risk. A debt-to-income ratio above 45% can push you into a higher tier. Investment properties and multi-unit buildings cost more than a single-family home you plan to live in.
How You Can Pay the Premium
Not all PMI is structured the same way, and the structure affects both your monthly budget and whether you can cancel later.
Borrower-Paid Monthly
The common arrangement. A monthly premium is added to your mortgage payment and collected through escrow. The important feature is that you can cancel it once you reach 20% equity.
Single-Premium
You pay the entire cost as a lump sum at closing. That eliminates the monthly charge but demands significantly more cash upfront. If you sell or refinance early, some policies refund part of the premium and others don’t. This works best when you’re confident you’ll stay in the home long enough for the monthly savings to outweigh the upfront hit.
Split-Premium
A hybrid: part upfront, the rest through smaller monthly installments. Less cash at closing than single-premium, lower monthly payment than fully borrower-paid. Not every lender offers it.
Lender-Paid
The lender covers the premium and charges you a higher interest rate for the life of the loan. The monthly payment can look competitive, but there is a catch: because the cost is baked into the rate, you cannot cancel it when you hit 20% equity. The Consumer Financial Protection Bureau notes that “different rules apply” when your lender pays for your mortgage insurance.1Consumer Financial Protection Bureau. When Can I Remove Private Mortgage Insurance PMI From My Loan The only way to shed the higher rate is to refinance into a new loan. Over a long hold period, the cumulative cost of that rate premium can exceed what you’d have paid in traditional monthly PMI, so run the numbers.
How to Cancel PMI
The Homeowners Protection Act (HPA) gives you federal rights to cancel PMI on a conventional loan secured by a single-family primary residence.2Office of the Law Revision Counsel. 12 US Code 4902 – Termination of Private Mortgage Insurance Many borrowers pay for months longer than they need to because they never submit the paperwork.
Request Cancellation at 80% LTV
You can ask your servicer to cancel PMI once your loan balance reaches 80% of the home’s original value. To qualify, you must meet all of the following:3Consumer Financial Protection Bureau. Homeowners Protection Act HPA PMI Cancellation Act Procedures
- Submit the cancellation request to your loan servicer in writing.
- Have a good payment history: no payments 30 or more days late in the past 12 months, and none 60 or more days late in the past 24 months.4Fannie Mae. Termination of Conventional Mortgage Insurance
- Certify that you have no second mortgage or home equity line of credit on the property.
- Provide evidence, usually a new appraisal, that the home’s value hasn’t fallen below the original value. Appraisal fees generally run $300 to $600 for a standard single-family home.
“Original value” means the lesser of the purchase price or the appraised value at origination. Extra payments count. If you’ve been paying down principal ahead of schedule and reach 80% early, you can request cancellation right then rather than waiting for the amortization schedule to catch up.
Automatic Termination at 78% LTV
If you never send a written request, your servicer must automatically terminate PMI on the date your loan balance is scheduled to reach 78% of the original value, based on the original amortization schedule.2Office of the Law Revision Counsel. 12 US Code 4902 – Termination of Private Mortgage Insurance You have to be current on your payments for automatic termination to take effect.
The gap between 80% and 78% matters. On a $350,000 loan, those two percentage points represent about $7,000 in additional principal, and the premiums you’d pay while working through that $7,000 can easily add up to a thousand dollars or more. One written letter, sent at the right time, is almost always worth it.
Midpoint Backstop
Even if your balance never reaches 78% because of missed payments, forbearance, or an interest-only period, the HPA sets a final deadline. PMI must be terminated no later than the first day of the month following the midpoint of your amortization period, as long as you’re current on payments.2Office of the Law Revision Counsel. 12 US Code 4902 – Termination of Private Mortgage Insurance On a 30-year mortgage, that’s the 15-year mark. No borrower pays PMI indefinitely.
Canceling Based on Appreciation
The HPA thresholds use the home’s original value. If your home has gained value through market conditions or improvements, you may be able to cancel sooner, but the rules here come from your investor’s guidelines rather than federal law, and they’re stricter.
Fannie Mae imposes seasoning requirements based on how long you’ve held the mortgage:4Fannie Mae. Termination of Conventional Mortgage Insurance
- Two to five years of ownership: current LTV must be 75% or less based on a new appraisal.
- More than five years: current LTV must be 80% or less.
Substantial improvements, such as a kitchen renovation, bathroom remodel, or added square footage rather than routine maintenance, can waive the two-year minimum, though the LTV still has to be 80% or less. You’ll need to give your servicer details of the improvements made since origination. A new appraisal is required, and the same payment history and no-subordinate-lien rules apply.
One Boundary to Know
The HPA’s cancellation and termination rights apply only to mortgages on single-family dwellings that serve as the borrower’s primary residence. If the loan is on an investment property, a vacation home, or a two-to-four-unit building, your servicer isn’t federally required to cancel PMI at these thresholds. What you get depends on your loan agreement and your investor’s guidelines.
Ways to Avoid PMI in the First Place
If you’d rather skip PMI entirely, a few approaches work, each with its own trade-off:
- Save for a 20% down payment. The most direct path. No PMI from day one, and you start with meaningful equity.
- Use a piggyback loan. An 80-10-10 structure pairs an 80% first mortgage with a 10% second mortgage and a 10% down payment. Because the primary mortgage sits at exactly 80% LTV, no PMI is triggered. The second mortgage carries a higher rate, so compare the total cost against what you’d pay in PMI.
- Consider a VA loan if you qualify. Eligible veterans and service members pay a one-time funding fee instead of monthly insurance, and no down payment is required.
- Weigh lender-paid PMI carefully. It removes the separate premium but locks you into a higher rate you can only escape by refinancing. The math favors this option mainly if you already expect to refinance in a few years.
The right choice depends on how long you plan to stay, how much cash you have, and what else you’d do with that money.
Deducting PMI on Your Taxes
The federal deduction for mortgage insurance premiums has been reinstated and made permanent starting with tax year 2026, following enactment of the One Big Beautiful Bill Act.5Internal Revenue Service. One Big Beautiful Bill Provisions This is the first time since tax year 2021 that the deduction has been available. Homeowners who itemize can deduct premiums paid to private mortgage insurers as well as to government mortgage insurance agencies.
The deduction phases out at higher incomes based on adjusted gross income, so not every filer benefits equally. And it only helps if you itemize. With the standard deduction where it is now, many homeowners don’t, so check whether your total itemized deductions, including mortgage interest and PMI, actually exceed the standard deduction before assuming you’ll see a tax break.