Glossary · Mortgages

What Is PMI?

📚 Financial Glossary ⏱️ 4 min read ✍️ Calculator Hub Team
PMI (private mortgage insurance) is an extra monthly fee lenders charge on conventional home loans when your down payment is less than 20%. It protects the lender — not you — against loss if you default, and it typically costs 0.5% to 1.5% of your loan amount per year.

Why Lenders Require PMI

When you put down less than 20%, you're a statistically higher default risk in the lender's eyes. Rather than reject the loan, most lenders let you borrow anyway — but require you to pay for insurance that reimburses them if you stop paying and the home sells for less than the loan balance. It's a cost of low-down-payment convenience, not a benefit to you directly.

Worked Example: PMI on a $350,000 Home

Say you buy a $350,000 home with a 10% down payment ($35,000), financing $315,000 at a PMI rate of 0.75% annually.

ItemAmount
Loan amount$315,000
Annual PMI (0.75%)$2,362.50
Monthly PMI$196.88
PMI paid until 78% LTV reached~5-7 years typical

Over roughly 6 years before automatic cancellation, this buyer pays around $14,000 in PMI — money that buys no equity and disappears once removed. That's the real cost of the smaller down payment, on top of the mortgage itself.

How to Get Rid of PMI Faster

  • Pay down principal faster with extra payments to hit 80% loan-to-value sooner
  • Request a new appraisal if your home's value has risen — reaching 80% equity through appreciation counts too
  • Refinance once you have 20%+ equity into a loan with no PMI requirement
  • Watch for automatic cancellation at 78% LTV, which lenders must apply by law

Figures above are illustrative estimates based on a fixed 0.75% PMI rate and standard amortization; actual PMI rates vary by credit score, loan type, and insurer. This is not financial advice.

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Frequently Asked Questions

What is PMI in simple terms?

An extra monthly cost lenders charge when you put down less than 20% on a conventional home loan. It protects the lender if you default — not you as the borrower.

How much does PMI typically cost?

Usually 0.5% to 1.5% of the original loan amount per year. On a $350,000 loan, that's roughly $1,750 to $5,250 per year, or about $146 to $438 per month.

When does PMI go away?

By federal law, lenders must automatically cancel PMI once your loan balance reaches 78% of the home's original value. You can request cancellation earlier once you reach 80% equity.

Can I avoid PMI entirely?

Yes — put down 20%+, use a piggyback (80-10-10) loan, choose lender-paid PMI rolled into a higher rate, or use a VA loan, which doesn't require PMI at all.

Is PMI the same as homeowners insurance?

No. Homeowners insurance protects you against property damage and liability. PMI protects the lender against your default — entirely different purposes.

Does PMI apply to FHA and VA loans?

FHA loans have their own mortgage insurance premium (MIP) that often requires refinancing to remove. VA loans don't require mortgage insurance at all, though they may have a funding fee.