Private mortgage insurance (PMI) protects your lender — not you — if you stop paying your mortgage, and conventional lenders require it when your down payment is under 20%. On a $360,000 loan at 0.75% a year, PMI costs $225 a month, and you can ask for removal at 80% equity.
PMI is one of the most misunderstood costs in homebuying: it buys you nothing directly, yet it is the reason millions of buyers can purchase with a small down payment at all. This guide works out exactly what it costs, when it ends, and how to get rid of it faster.
What Is PMI, and Who Pays for It?
PMI is a policy your lender buys on your behalf and you pay for, usually as part of your monthly mortgage payment. It covers the lender’s losses if you default — it does not pay your mortgage, protect your equity, or insure the home itself. Think of it as the price of borrowing with less than 20% down: the lender takes more risk, and PMI is how that risk gets priced.
Two facts surprise most buyers. First, you do not choose whether to have PMI — if your down payment is under 20% on a conventional loan, the lender requires it. Second, PMI is not permanent. Federal law gives you two clear exit points, and rising home values can open a third. The only loan type where mortgage insurance does not work this way is the FHA loan, which has its own version — covered below.
How Much Does PMI Cost?
PMI typically costs between 0.3% and 1.5% of the original loan amount per year, depending on your down payment and credit score. A larger down payment and a higher credit score both mean a lower PMI rate. The annual cost is divided by 12 and added to your monthly payment.
Here is what PMI looks like on a $400,000 home at 6.5% over 30 years, using a 0.75% annual PMI rate for comparison:
| Down payment | Loan amount | Monthly P&I | Monthly PMI | P&I + PMI |
|---|---|---|---|---|
| 3% ($12,000) | $388,000 | $2,452.42 | $242.50 | $2,694.92 |
| 5% ($20,000) | $380,000 | $2,401.86 | $237.50 | $2,639.36 |
| 10% ($40,000) | $360,000 | $2,275.44 | $225.00 | $2,500.44 |
| 15% ($60,000) | $340,000 | $2,149.03 | $212.50 | $2,361.53 |
At the extremes of the rate range, the same $360,000 loan costs anywhere from $90 a month in PMI at 0.3% to $450 a month at 1.5%. Your credit score moves you along that range more than anything else — a borrower with a 760 score can pay half the PMI rate of a borrower with a 660 score on the same loan. That is one more reason to check your credit before you shop for a home. A free mortgage calculator gives you the principal-and-interest payment instantly; add the PMI figure from the table above for the real monthly cost.
Worked Example: A $400,000 Home With 10% Down
Take a $400,000 home bought with 10% down — $40,000 — leaving a $360,000 loan at 6.5% over 30 years, with PMI at 0.75% a year.
Step 1: Find the monthly PMI.
$360,000 × 0.0075 ÷ 12 = $225.00 a month, or $2,700 a year.
Step 2: Add it to the loan payment.
The principal-and-interest payment on $360,000 at 6.5% over 30 years is $2,275.44. With PMI, the monthly cost is $2,275.44 + $225.00 = $2,500.44 (before taxes and insurance).
Step 3: Work out what PMI costs over its whole life.
As the next section shows, this borrower can request PMI removal in month 95 — about 7 years and 11 months in. Paying $225 a month for 95 months means $21,375 in total PMI. That is the true cost of the 10% down payment: $21,375 paid for insurance that protects only the lender.
Step 4: Compare with 20% down.
With 20% down on the same home, the loan is $320,000, the payment is $2,022.62, and there is no PMI at all — $477.82 a month less than the 10%-down buyer. The catch, of course, is saving the extra $40,000 first. Whether that wait is worth it depends on your market, your rent, and your timeline — but the math above is the honest price of deciding.
When Does PMI Go Away?
Federal law — the Homeowners Protection Act — gives conventional borrowers two automatic milestones, both measured against the home’s original value:
At 80% loan-to-value: you can ask. Once your loan balance falls to 80% of the home’s original purchase price, you can request cancellation in writing. The lender can require that you are current on payments and that the home has not declined in value. On our $360,000 loan example, 80% of $400,000 is a balance of $320,000 — reached in month 95, when the balance is $319,707.73. That is 7 years and 11 months of PMI, or $21,375 at $225 a month.
At 78% loan-to-value: it ends automatically. If you never ask, the lender must cancel PMI automatically once the balance falls to 78% of the original value — $312,000 on this home — provided you are current on payments. That happens in month 109, about 9 years and 1 month in. The 14 extra months between 80% and 78% cost $3,150 in PMI you did not have to pay, which is why asking at 80% matters.
A faster route: rising home values. If your home appreciates, you may reach 80% of its current value much sooner. A home that rises from $400,000 to $450,000 makes a $360,000 loan an 80% loan-to-value on day one — but the lender will usually require a new appraisal ($300 to $600) to prove the value, and some lenders require two years of payments before they accept an appreciation-based request. Home improvements that raise value count the same way, with the same appraisal step.
With only 5% down — a $380,000 loan on the same home — the wait is longer: the balance reaches $320,000 in month 124 (10 years and 4 months) and $312,000 in month 135 (11 years and 3 months), costing about $29,450 in PMI at $237.50 a month before you can ask for removal. Every extra point of down payment shortens the PMI clock.
What About FHA Loans? MIP Works Differently
FHA loans do not use PMI — they use mortgage insurance premium (MIP), and the rules are stricter. Every FHA borrower pays an upfront premium of 1.75% of the loan amount — $6,300 on a $360,000 loan, usually rolled into the loan itself — plus an annual premium, currently 0.55% a year for most loans, or $165 a month on a $360,000 loan.
The critical difference: for most FHA loans taken out with less than 10% down, MIP does not cancel at 80% or 78%. It lasts for the life of the loan. The only way to remove it is to refinance into a conventional loan once you have at least 20% equity. That refinance costs money and depends on rates at the time, so an FHA loan with a small down payment can carry mortgage insurance far longer than a conventional loan would. If you can qualify for conventional, it is usually the cheaper path.
Three Ways to Avoid PMI Entirely
Put 20% down. The simplest route, and the one that also gets you the lowest payment. On a $400,000 home that means $80,000 — a big number, but every dollar above 20% is also a dollar less of loan.
Use a piggyback loan (80-10-10). You take a first mortgage for 80% of the price, a second loan for 10%, and put 10% down yourself. No PMI, because the first mortgage is at 80% loan-to-value — but the second loan carries a higher rate, so compare the combined payment against the PMI option before you choose.
Ask about lender-paid PMI. Some lenders will pay the PMI themselves in exchange for a higher interest rate — often about 0.25% higher. On a $360,000 loan, 0.25% adds about $60 a month to the payment, which can be cheaper than $225 in PMI — but the higher rate lasts for the life of the loan, while PMI ends. Do the full comparison, not just the first year.
A Faster Way to Check Your Payment With PMI
PMI turns a simple payment calculation into a two-part problem: the loan payment plus the insurance. Our guide to how to calculate your monthly mortgage payment by hand works the loan payment out step by step — $2,275.44 on our $360,000 example — and a free monthly mortgage payment calculator gives it instantly. Then add your PMI estimate from the range above, and check how much house can i afford to make sure the full payment, PMI included, still fits the 28/36 rule.
FAQ: What Is PMI?
What is PMI?
Private mortgage insurance protects your lender if you default, and it is required on conventional loans with less than 20% down. You pay for it — typically 0.3% to 1.5% of the loan amount per year — but it protects only the lender.
How much is PMI per month?
On a $360,000 loan at a 0.75% annual rate, PMI is $225 a month. The range is roughly $90 a month at 0.3% to $450 at 1.5%, depending on your down payment and credit score.
When does PMI go away?
You can request cancellation at 80% loan-to-value — month 95 on a $360,000 loan at 6.5% — and the lender must cancel it automatically at 78%, month 109. Rising home values can get you there sooner with a new appraisal.
Can I get PMI removed early?
Yes, if your home’s value has risen enough that your loan is 80% or less of its current value. The lender will usually require a new appraisal and may require two years of on-time payments first.
Is PMI tax deductible?
It has changed over the years — recent US tax-law changes restored the PMI deduction for the 2026 tax year for qualifying homeowners who itemize, but the rules and income limits are specific. Check the current law or ask a tax professional before you count on it.
Does PMI go away on an FHA loan?
No — FHA loans charge MIP instead of PMI, and for most loans with less than 10% down, MIP lasts for the life of the loan. The usual way to remove it is to refinance into a conventional loan once you have 20% equity.