You need private mortgage insurance, or PMI, whenever your conventional mortgage covers more than 80% of your home’s value. In practice, that means any time you put less than 20% down on a conventional loan. PMI protects the lender against loss if you default, not you, and federal law gives you the right to cancel it once you’ve built enough equity in the home.
The 80 Percent Loan-to-Value Trigger
Lenders measure risk with your loan-to-value ratio (LTV), which compares your mortgage balance to the home’s value. When LTV is above 80% at closing, the lender requires PMI.1Consumer Financial Protection Bureau. What Is Private Mortgage Insurance? Anything less than a 20% down payment puts you above that line.2Freddie Mac. Down Payments and PMI
On a $400,000 home, a 10% down payment ($40,000) leaves you financing $360,000, an LTV of 90%. A 15% down payment gets you to roughly 85%. Both trigger PMI, but the higher the LTV, the higher the premium, because the lender has less of your equity cushioning any loss.
Rates vary widely with credit score and down payment size. Annual premiums typically fall between 0.46% and 1.50% of the loan balance, which on a $300,000 mortgage works out to roughly $115 to $375 per month. Fannie Mae applies loan-level price adjustments based on both LTV and credit score, so a smaller down payment costs more even at the same score.3Fannie Mae. Mortgage Insurance Coverage Requirements
Loans Where PMI Does Not Apply
PMI is specific to conventional loans. Government-backed mortgages have their own fee structures, and confusing them with PMI is a common mistake.
FHA loans require a mortgage insurance premium (MIP) no matter how much you put down. FHA MIP includes a 1.75% upfront premium (usually financed into the loan) plus an annual premium paid monthly. If you put down less than 10%, the annual MIP runs for the life of the loan and cannot be canceled the way conventional PMI can. If you put down 10% or more, MIP drops off after 11 years. The only way to escape MIP on a low-down-payment FHA loan is to refinance into a conventional mortgage once you have enough equity.
VA loans require no mortgage insurance at all. Most VA borrowers instead pay a one-time funding fee.4U.S. Department of Veterans Affairs. Purchase Loan USDA loans also skip PMI but charge an upfront guarantee fee (typically 1% of the loan) plus an annual fee of 0.35% of the remaining balance. The cancellation rules below apply to conventional PMI only.
How PMI Is Paid
Most borrowers pay PMI as a monthly premium built into the mortgage payment. This is the version the cancellation rules were written for, and it’s what people usually mean by PMI.
Single-premium PMI lets you pay the full insurance cost as a lump sum at closing, sometimes financed into the loan balance. You generally do not get a refund if you sell or refinance early.
Lender-paid mortgage insurance (LPMI) shifts the premium into a higher interest rate, typically about a quarter-point above what you’d otherwise get. On a $400,000 loan that might add roughly $66 a month. The important limitation: because LPMI is baked into the rate, you cannot cancel it when you reach 20% equity. It stays for the life of the loan unless you refinance.
How to Cancel PMI
The federal Homeowners Protection Act (HPA) gives you three paths to eliminate PMI on a conventional loan, and your servicer must follow them.5Office of the Law Revision Counsel. 12 USC Ch. 49 – Homeowners Protection
Request Cancellation at 80 Percent
You can ask your servicer in writing to cancel PMI once your mortgage balance reaches 80% of the home’s original value. Original value means the lesser of your purchase price or the appraised value at closing. If you’ve refinanced, it’s the appraised value at your most recent refinance.6Consumer Financial Protection Bureau. When Can I Remove Private Mortgage Insurance (PMI) From My Loan You can reach 80% through normal amortization or by making extra principal payments.
To qualify, all four of these conditions must be met:7Office of the Law Revision Counsel. 12 USC 4902 – Termination of Private Mortgage Insurance
- Submit a written request to your loan servicer.
- Have a good payment history: no payment more than 60 days late in the 12 months starting two years before the cancellation date, and no payment more than 30 days late in the most recent 12 months.
- Be current on payments when you submit the request.
- Show that the property value has not fallen below original value (an appraisal may be required) and certify that no second mortgage or other lien encumbers the property.
Your PMI disclosure form from closing should list the earliest date you’re eligible under the amortization schedule. If extra payments have moved you there sooner, you can request cancellation ahead of that date.
Automatic Termination at 78 Percent
If you never send a written request, your servicer must automatically terminate PMI once your balance is scheduled to reach 78% of the original value based on the original amortization schedule. You have to be current for the automatic termination to take effect; if you’re behind, it kicks in the first day of the month after you catch up. Unlike borrower-requested cancellation, automatic termination does not require an appraisal or a lien certification.
The gap between 80% and 78% is real money. On a $300,000 loan, that two-point difference is $6,000 in principal, and closing it can take a year or more of payments. Sending the written request at 80% is almost always worth the effort.
Final Termination at the Loan Midpoint
As a backstop, the HPA requires PMI removal no later than the midpoint of the loan’s amortization schedule — year 15 of a 30-year mortgage, for instance — as long as you’re current on payments.7Office of the Law Revision Counsel. 12 USC 4902 – Termination of Private Mortgage Insurance This exists to catch any case the earlier triggers miss.
Canceling PMI When Your Home Has Appreciated
The HPA rules use original value, but Fannie Mae and Freddie Mac have separate guidelines that let you cancel PMI based on the home’s current appraised value. The thresholds are stricter than the standard 80% rule and depend on how long you’ve owned the home:8Fannie Mae. Termination of Conventional Mortgage Insurance
- Two to five years of ownership: current LTV must be 75% or less (at least 25% equity based on current value).
- More than five years: current LTV must be 80% or less (at least 20% equity).
Both routes require a full interior-and-exterior appraisal. Appraisal fees for a single-family home generally run between $525 and $1,300. If substantial improvements have raised the value, Fannie Mae may waive the two-year minimum ownership requirement, though the LTV must still be 80% or lower.
Call your servicer before ordering anything on your own. Some servicers require you to use their approved appraiser, and doing it out of order can waste the fee.
PMI When You Refinance
Refinancing resets the equation. The lender orders a new appraisal and calculates LTV against the new loan amount. If it exceeds 80%, PMI is required on the new loan even if your old loan didn’t have it.1Consumer Financial Protection Bureau. What Is Private Mortgage Insurance?
Cash-out refinances are the usual culprit, because pulling equity out pushes LTV back up. Run the numbers before committing: a new PMI premium can quietly erase the benefit of the cash you took. Rate-and-term refinances are safer on this front. The lender uses the appraised value at the time of the refinance rather than your original purchase price, so market appreciation can keep you below 80% and PMI-free.