What is PMI, and how do I get rid of it?

Short answer: PMI (private mortgage insurance) is an extra monthly charge on a conventional mortgage when your down payment is under 20 percent. It protects the lender, not you — but you pay for it. The good news: unlike FHA mortgage insurance, it isn't permanent. You can request cancellation at 80 percent loan-to-value, it drops automatically at 78 percent, and there are ways to get there faster.

PMI typically costs between 0.5 and 1.5 percent of the loan amount per year — roughly $30 to $150 a month for every $100,000 borrowed, depending mostly on your credit score and down payment size. On a $300,000 loan, that's commonly $125 to $350 a month. It's real money, and getting rid of it is one of the highest-return moves a homeowner can make.

Here's how it works and how to kill it.

What PMI actually is

When you put less than 20 percent down on a conventional mortgage, the lender takes on more risk — if you default early, the sale of the home might not cover the loan. PMI insures the lender against that loss. Your monthly premium goes to the insurer; the protection goes to the bank. It does nothing for you directly.

This is the single most misunderstood part. PMI doesn't protect you from foreclosure, doesn't build equity, and doesn't get refunded when it's removed. It's the price of buying with a small down payment. That price can be worth paying — waiting years to save 20 percent while home prices and rents rise has its own cost — but you should go in knowing exactly what it is.

PMI is required on conventional loans (Fannie Mae and Freddie Mac-backed) with less than 20 percent down. Government-backed loans use different systems: FHA loans carry MIP (mortgage insurance premium), and VA loans have no monthly mortgage insurance at all.

What it costs you

Your PMI rate depends mainly on two things: your credit score and your down payment size. A borrower with a 760-plus score and 10 percent down might pay around 0.3 percent of the loan amount annually. The same loan with a 620 score could cost up to 1.5 percent. On a $350,000 loan, that's the difference between roughly $90 and $440 a month.

The premium is recalculated on your current loan balance, so it shrinks as you pay down principal — slowly at first, faster later. Most borrowers pay PMI as a monthly line item in their mortgage payment. Alternatives exist: you can pay the whole premium upfront at closing (single-premium PMI), split it between upfront and monthly, or take lender-paid PMI — where the lender covers it in exchange for a slightly higher interest rate. Monthly borrower-paid PMI is the most common and usually the most flexible, since it can be canceled.

Don't confuse the rate with the total cost. A half-point difference in PMI rate on a large loan over several years adds up to thousands. When comparing lenders, ask for the PMI quote in dollars, not just the mortgage rate. Also ask whether the PMI is priced as a flat monthly amount or whether it will step down as your balance falls — most borrower-paid PMI recalculates annually against the current balance, so the payment quietly shrinks over time even before cancellation.

One more cost note: tax treatment of PMI has changed over the years. For a long stretch it wasn't deductible at all, though recent legislation has moved to restore deductibility for mortgage insurance premiums starting with the 2026 tax year. Tax rules shift and phase in with income limits, so check current law or ask a tax professional before counting on the deduction in your math.

PMI vs. FHA mortgage insurance: know which you have

This distinction matters enormously, because the exit doors are different. Conventional PMI can be canceled. FHA's MIP usually cannot — if you put less than 10 percent down on an FHA loan, you pay MIP for the life of the loan, and the only way out is refinancing into a non-FHA mortgage. (With 10 percent or more down, FHA MIP drops off after 11 years.)

FHA MIP also has an upfront component: 1.75 percent of the loan amount, usually rolled into the loan balance, plus an annual premium around 0.55 percent for most borrowers. So an FHA loan's insurance structure is heavier and stickier than conventional PMI.

If you're early in an FHA loan and your home has appreciated or your credit has improved, refinancing into a conventional loan with 20 percent equity eliminates mortgage insurance entirely. Run both totals before assuming your current loan type is still the right one.

The 80% rule: request cancellation yourself

Under the federal Homeowners Protection Act, you have the right to request PMI cancellation once your mortgage balance reaches 80 percent of the home's original value — meaning you have 20 percent equity. You must ask in writing; this doesn't happen automatically.

Your servicer has conditions: you generally need to be current on payments with a good payment history, the property value can't have declined below the original value, and you can't have a second lien that pushes total borrowing above program limits. Some servicers also want the loan to be at least two years old before they'll consider a request based on appreciation rather than paydown.

The key insight: this right is based on the original purchase price or appraised value at closing — not the current market value. But many servicers will also accept a new appraisal showing 20 percent equity based on current value, which brings us to the fastest exit of all.

The 78% rule: automatic termination

If you never ask, the law still protects you. Your servicer must automatically terminate PMI once your loan balance reaches 78 percent of the original value, provided you're current on payments — no request needed. This happens on the date your amortization schedule says you'll hit 78 percent, not when you actually get there through extra payments.

There's also a final backstop: PMI must be terminated at the midpoint of the loan term (year 15 of a 30-year mortgage) even if you haven't reached 78 percent. This is rare in practice — most borrowers hit 78 percent well before then — but it exists.

The gap between 80 and 78 percent is why you shouldn't just wait. On a typical loan, the time between hitting 80 percent and 78 percent can be a year or more of unnecessary premiums. A written request at 80 percent is free money.

The fastest exits: appreciation and extra payments

Paying down principal faster is the most controllable route: extra principal payments, applied directly to the balance, move your 80-percent date closer. Even one extra payment a year can shave years off the PMI timeline.

But the real shortcut in rising markets is a new appraisal. If your home's value has climbed since you bought, you may already have 20 percent equity based on current value — even with a small down payment. A professional appraisal typically costs a few hundred dollars; if it wipes out $2,000 a year in PMI, the payback is measured in weeks.

Servicers have their own seasoning rules here — some require the loan to be two years old before they'll use a new appraised value, and longer if you want to count on appreciation alone versus paydown. Check your servicer's specific guidelines before ordering the appraisal, and get a realistic sense of your home's value from recent comparable sales first.

Refinancing is the other major exit: if rates have dropped or your equity has grown past 20 percent, refinancing into a new conventional loan without PMI can both remove the premium and improve your rate. Just make sure the closing costs don't eat the savings — compare the break-even timeline honestly. A refinance that costs $5,000 in fees to save $150 a month in PMI takes nearly three years to pay for itself, so only do it if you plan to stay put and the rate improvement adds to the win.

What to do this month

If you're paying PMI right now, take three steps. First, check your current loan balance against your home's original value — you may be closer to 80 percent than you think, especially if you've owned for several years. Second, look up recent comparable sales in your neighborhood to estimate your current value; if appreciation has been strong, an appraisal request may be your move. Third, if you're near the threshold, send the written cancellation request to your servicer and follow up — servicers process these routinely, but they don't volunteer them.

The calm takeaway: PMI is a temporary toll, not a life sentence. Know which type of mortgage insurance you have, track your loan-to-value ratio, and act at 80 percent instead of waiting for 78. The letter you write is worth hundreds of dollars a year.