What is PMI, what does it cost, and when does it go away?
Private mortgage insurance is the most misunderstood line on a mortgage statement. The single most important fact: it protects your lender, not you. If you stop paying, PMI pays them. You get nothing from it except the ability to buy sooner.
Why it exists
A lender's risk is concentrated in the gap between what you owe and what the house would fetch in a forced sale. With 20% down that gap is comfortable. With 5% down it is not, and the loan would be uneconomic to make. PMI transfers that risk to an insurer, you pay the premium, and the loan becomes possible.
That framing matters, because it tells you when PMI is worth paying: when the alternative is not buying, or waiting years while prices move. It is a fee for access, not a rip-off, and treating it as something to avoid at any cost leads people into worse decisions than the premium itself.
What it actually costs
PMI is quoted as an annual percentage of the loan and billed monthly. Two things drive the rate: your loan-to-value ratio and your credit score. Neither is negotiable at the counter, but both are improvable before you apply.
| Down payment | 760+ | 740-759 | 720-739 | 700-719 | 680-699 | 660-679 | 640-659 |
|---|---|---|---|---|---|---|---|
| 97% (3% down) | 0.77% | 0.94% | 1.1% | 1.32% | 1.59% | 1.98% | 2.25% |
| 95% (5% down) | 0.55% | 0.66% | 0.78% | 0.94% | 1.13% | 1.4% | 1.72% |
| 90% (10% down) | 0.36% | 0.44% | 0.52% | 0.62% | 0.75% | 0.94% | 1.14% |
| 85% (15% down) | 0.24% | 0.3% | 0.35% | 0.42% | 0.51% | 0.63% | 0.77% |
Work through an example. On a $300,000 loan with 10% down and a mid-700s score, the rate is about 0.44%, which is $110 a month. Push the down payment to 3% with a 640 score and the same loan costs roughly $562 a month — nearly 5 times as much, for the same house.
That spread is the strongest financial argument for spending a few months improving your credit score before applying. It stacks with the interest rate improvement, which moves in the same direction for the same reason.
The three ways it ends
On a conventional loan, federal law under the Homeowners Protection Act gives you three exits:
1. You request it at 80% LTV. Once your balance reaches 80% of the original purchase price, you can ask the servicer to cancel. You generally need to be current, have a clean recent payment history, and carry no second lien. This is a request, so it requires you to actually make it — nobody calls to remind you.
2. It cancels automatically at 78% LTV. The servicer must terminate it on its own once the balance hits 78% of the original value, based on the original amortization schedule. Note "scheduled": extra payments you made do not accelerate this particular trigger, which is exactly why option 1 exists.
3. The midpoint backstop. If neither has happened, PMI must end at the midpoint of the loan term — year 15 of a 30-year loan.
There is a fourth route worth knowing: if your home has appreciated, you can ask to cancel based on current value rather than original, which requires a new appraisal you pay for. Seasoning requirements apply and vary, so ask your servicer what they need before spending the appraisal fee.
FHA is different, and this is the trap
FHA loans do not carry PMI; they carry MIP, and the rules are not the same. On FHA loans originated since June 2013 with less than 10% down — which is nearly all of them — mortgage insurance lasts the life of the loan. It does not fall away at 80%, or 78%, or ever. With 10% or more down it ends after 11 years.
Escaping FHA MIP means refinancing into a conventional loan, which means qualifying again at whatever rates exist then. If rates are higher, you may be choosing between the insurance and a worse rate. Go in knowing that, rather than assuming it works like conventional PMI.
How to pay less of it
Raise the credit score first — it is the cheapest lever and it improves your interest rate at the same time. Then look at the LTV bands: the jumps happen at 85%, 90% and 95%, so scraping together enough to cross a threshold is worth far more than the same money spread thinly. Going from 89% to 85% LTV can cut the premium by a third; going from 89% to 88% does nothing.
Also ask about lender-paid PMI, where the lender covers the premium in exchange for a higher interest rate. It is sometimes cheaper overall, and unlike borrower-paid PMI it never cancels — the higher rate is permanent. Run both.
Should you wait for 20%?
Usually not, and the arithmetic is the reason. Our calculator includes PMI in the monthly figure precisely so you can see the trade instead of guessing at it. For most buyers the premium is a modest monthly cost that ends in a few years, while waiting means paying rent and watching prices move. For some buyers it genuinely is worth waiting. The point is to decide with the number in front of you.
Common questions
What is PMI?
Private mortgage insurance is a premium you pay that protects the lender if you default. It is normally required on a conventional mortgage when your down payment is under 20%. It provides you no coverage at all.
How much does PMI cost per month?
Typically 0.24% to 2.25% a year as a percentage of the loan. On a $300,000 loan with 10% down and a 740 credit score that is about $110 a month; with a 640 score and 3% down it is closer to $562 a month.
When does PMI go away?
On a conventional loan you can request cancellation once you reach 80% loan-to-value, and the servicer must cancel it automatically at 78% based on the original amortization schedule. FHA mortgage insurance on loans with less than 10% down generally lasts the life of the loan, and ending it requires refinancing.