How PMI Works and When It Ends

Short answer: private mortgage insurance (PMI) is a monthly fee you pay on a conventional mortgage when you put down less than 20%. It usually costs about 0.2% to 1.9% of the loan per year, depending on your credit score and down payment. You can ask your lender to cancel it once your balance reaches 80% of the home's original value, and it must end automatically at 78%.

On a $400,000 home with 10% down and a credit score around 700, PMI adds about $165 a month and lasts roughly 8 to 9 years if you make normal payments. Here's how it works and how to get rid of it sooner.

What PMI is and why you pay it

PMI protects the lender, not you. If you stop paying and the home is sold at a loss, the insurer covers part of the lender's loss. Because a small down payment makes a loan riskier, lenders require PMI on most conventional loans with less than 20% down.

In return, PMI lets you buy a home years earlier than you could if you had to save a full 20%. On a $400,000 home, that's the difference between saving $40,000 and saving $80,000.

PMI is usually added to your monthly mortgage payment. Less commonly, it can be paid as a single upfront premium at closing, or the lender can pay it in exchange for a higher interest rate (called lender-paid mortgage insurance).

How much PMI costs

Two things drive your PMI rate: your credit score and your down payment. Here's the typical monthly PMI on a $400,000 home:

The same 5% down payment can cost $130 a month or $481 a month depending on credit. Raising your score before you apply can save thousands. Getting from 15% to 20% down removes PMI entirely.

These are typical estimates. Actual rates vary by insurer, lender, loan term, and your debt-to-income ratio, so compare the PMI on your Loan Estimate from each lender. Our mortgage calculator estimates PMI from your credit score and down payment and adds it to your monthly payment.

How to calculate PMI

Multiply your loan amount by the annual PMI rate, then divide by 12. For a $360,000 loan at 0.55%: $360,000 × 0.0055 ÷ 12 = $165 a month.

When PMI ends

For conventional loans on a primary home, the federal Homeowners Protection Act sets three ways PMI ends:

1. You can ask to cancel at 80%. Once your balance is scheduled to reach 80% of the home's original value (the lower of the purchase price or appraised value), or reaches it sooner because of extra payments, you can request cancellation in writing. You generally need a good payment history, be current on the loan, and have no second mortgage, and the lender may ask for an appraisal to show the home hasn't lost value.
2. It ends automatically at 78%. When your balance is scheduled to reach 78% of the original value under your original payment schedule, the lender must cancel PMI, as long as you're current on payments.
3. It ends at the loan's midpoint. Even if you haven't hit 78%, PMI must end halfway through the loan term (15 years on a 30-year loan) if you're current.

Here's how long that takes on the $400,000 home with a credit score of 700–719, making only the regular payment:

Asking at 80% instead of waiting for 78% saves one to one and a half years of PMI. Put a reminder on your calendar, because lenders don't have to cancel it for you until 78%.

How to get rid of PMI faster

1. Make extra principal payments

Extra payments let you reach 80% sooner, and then you can request cancellation. (Automatic cancellation at 78% still follows the original schedule, so you need to ask.) Adding $200 a month to the same loans:

Those savings are on top of the interest you save by paying down the loan faster. Our mortgage calculator shows the effect of extra payments on your whole loan.

2. Get a new appraisal if your home has gained value

If home prices in your area have risen or you've made major improvements, your loan may already be below 80% of the current value. Many lenders will cancel PMI based on a new appraisal, though rules are often stricter than for the original value. Under Fannie Mae guidelines, for example, you usually need to have had the loan at least two years and be at 75% of the new value (80% after five years). Ask your loan servicer for their exact rules before paying for an appraisal.

3. Refinance

If your home has gained enough value to give you 20% equity, refinancing into a new loan can drop PMI. This only makes sense if the new rate and closing costs still work in your favor, so compare the total cost, not just the PMI savings.

Ways to avoid PMI from the start

• Put down 20%. The simplest way, though it can mean waiting years longer to buy.
• Use a VA loan if you're an eligible service member or veteran. VA loans have no monthly mortgage insurance, though most borrowers pay a one-time funding fee.
• Choose lender-paid mortgage insurance. No monthly PMI, but a higher interest rate for the life of the loan, and it can't be cancelled. It can make sense if you plan to sell or refinance within a few years.
• A piggyback loan (80/10/10). A first mortgage for 80%, a second loan for 10%, and 10% down. You avoid PMI, but the second loan usually has a higher rate.
• Look into down payment assistance. State and local programs can help some buyers reach a larger down payment.

PMI vs. FHA mortgage insurance

FHA loans have their own mortgage insurance, called MIP, and it works differently:

• An upfront premium of 1.75% of the loan, usually added to the loan balance.
• An annual premium, around 0.5% to 0.55% of the loan for most borrowers, paid monthly.
• With less than 10% down, annual MIP lasts for the life of the loan. With 10% or more down, it ends after 11 years. The usual way to remove it sooner is to refinance into a conventional loan once you have enough equity.

FHA loans accept lower credit scores, so FHA can be cheaper for borrowers with fair credit. With good credit, conventional PMI is often cheaper and easier to remove. Compare both on your Loan Estimates.

Is paying PMI worth it?

Often, yes. Waiting several more years to save 20% means paying rent the whole time and possibly facing higher home prices or rates. Paying $165 a month for 8 years is about $15,700, which can be less than the rent and price increases you'd face while saving.

It's not worth stretching into a home you can barely afford, though. Include PMI when you check your budget against the 28/36 rule, since lenders count it as part of your housing payment.

Frequently asked questions

Do I have to pay PMI with 10% down?

On a conventional loan, yes. PMI is required with any down payment below 20%. With 10% down, it typically costs 0.3% to 1.1% of the loan per year depending on credit.

Is PMI paid monthly?

Usually. Most borrowers pay PMI monthly as part of their mortgage payment, alongside principal, interest, property taxes, and homeowners insurance. Less often, it's paid as a single premium at closing, or the lender pays it in exchange for a higher interest rate.

Does PMI go away when I reach 20% equity?

Not automatically. At 20% equity based on the original value, you can ask your lender to cancel it. It only ends automatically at 22% equity (a 78% balance) on the original schedule, or at the loan's midpoint.

Is PMI the same as homeowners insurance?

No. Homeowners insurance protects you if your home is damaged. PMI protects the lender if you stop paying the loan. You usually need both.

See exactly how PMI changes your payment by entering your price, down payment, and credit score in the mortgage calculator.