Private Mortgage Insurance (PMI): Cost and Removal Rules Explained
What Is Private Mortgage Insurance (PMI)?
Private Mortgage Insurance (PMI) is an insurance policy required by conventional lenders when a home buyer makes a down payment of less than 20% of the home's purchase price. PMI protects the lender—not the borrower—against financial loss if the homeowner defaults and the property goes into foreclosure.
Because the borrower pays the monthly premium for a policy that solely protects the financial institution, eliminating PMI as quickly as possible is a top priority for savvy homeowners.
How Much Does PMI Actually Cost?
PMI premiums are calculated as an annual percentage of the outstanding loan balance, typically ranging between 0.30% and 1.50% per year. The exact premium rate depends heavily on two underwriting factors:
- Credit Score (FICO): Borrowers with credit scores above 760 pay substantially lower PMI rates (often 0.35% to 0.50%), while borrowers with scores near 620 can pay 1.20% to 1.50%.
- Loan-to-Value Ratio (LTV): A 3% down payment (97% LTV) carries higher risk and higher premiums than a 10% down payment (90% LTV).
On a $350,000 loan with a 5% down payment ($332,500 balance), a 0.65% PMI rate adds $180.10 every month to your housing payment, costing over $2,160 each year in non-equity expenses. Calculate your exact costs using our PMI Calculator.
Federal Homeowners Protection Act of 1998 (HPA) Rules
The federal Homeowners Protection Act gives borrowers strict statutory rights to remove PMI on conventional residential mortgages:
You have the legal right to submit a written request to cancel PMI once your mortgage balance reaches 80% of the original property value (based on your contract purchase price or original appraisal, whichever was lower). To qualify, you must have a good payment history (no 30-day late payments in the past 12 months) and certify that no secondary liens (like a HELOC) have been attached.
By federal law, your lender must automatically terminate PMI once your loan balance is scheduled to reach 78% of the original purchase value, based solely on the date projected in your original amortization schedule, provided you are current on payments.
If you have not reached 78% LTV earlier, PMI must legally terminate at the midpoint of your loan term (e.g., month 180 of a 30-year mortgage), regardless of your current loan balance.
3 Ways to Remove PMI Ahead of Schedule
- Accelerated Principal Prepayments: By making extra principal payments, you can reach the 80% LTV threshold years ahead of the contractual schedule. Once hit, notify your servicer in writing to cancel the policy immediately.
- Home Market Appreciation: If property values in your neighborhood have risen significantly, your current equity may exceed 20%. Most lenders allow you to request PMI removal based on a new appraisal (ordered through the lender) if you have owned the home for at least 2 years and your LTV is below 75%–80%.
- Substantial Home Improvements: If you added a bedroom, remodeled the kitchen, or built an ADU that demonstrably raised the home's appraised value, you can request an appraisal without waiting for the two-year seasoning period.
PMI vs. FHA Mortgage Insurance (MIP)
Do not confuse conventional PMI with FHA Mortgage Insurance Premiums (MIP). Under FHA rules, if you put down less than 10%, MIP cannot be removed for the entire life of the 30-year loan. The only way to eliminate FHA MIP is to refinance into a conventional loan once your equity reaches 20%. Compare both loan types with our FHA Loan Calculator and Refinance Calculator.
Explore your numbers with our dedicated tools:
- PMI Calculator — Calculate monthly and total lifetime PMI costs.
- Down Payment Calculator — See how down payment size impacts equity and insurance thresholds.
- Home Equity Loan Calculator — Track your available equity as your loan amortizes.
Last reviewed 2026-10-11.