What is PMI? How to Avoid and Cancel Private Mortgage Insurance

When buying a home, you might notice an extra fee on your monthly payment estimate labeled PMI, or Private Mortgage Insurance.

Understanding what PMI is and how it works is the first step to saving thousands of dollars over the life of your home loan.

1. What is PMI?

PMI is insurance that conventional lenders require if your down payment is less than 20% of the home's purchase price.

Here is the most important thing to know: PMI does not protect you. It protects the lender in case you default on your mortgage payments.

2. How much does PMI cost?

PMI typically costs between 0.5% and 1.5% of your total loan amount annually. For example, on a $400,000 loan, a 1% annual fee equals $4,000 per year—an extra $333 per month!

3. How do I get rid of PMI?

• Automatic Cancellation (78% LTV): By law, lenders must cancel PMI once your loan balance reaches 78% of the original home value through standard payments.
• Borrower Request (80% LTV): You can request PMI cancellation once your balance drops to 80% equity.
• Re-appraisal: If your home's market value has surged, a new appraisal can prove your equity exceeds 20%.

Calculate your exact mortgage breakdown and PMI drop-off schedule using our interactive Mortgage Calculator!