What Is PMI?
Private mortgage insurance (PMI) is a policy that protects your lender if you default on your loan. It is typically required on conventional mortgages when you put down less than 20%. Importantly, PMI does not protect you or your home equity, it protects the bank.
The premium is usually bundled into your monthly mortgage payment, so many buyers do not realize how much they are paying until they look closely at the breakdown.
Why Lenders Require It
When you put down less than 20%, the lender is taking on more risk because you have less of your own money in the home. PMI offsets that risk. It is the reason lenders can offer low-down-payment loans at all, so in a sense it helps you buy sooner, even though it is an added cost.
How Much PMI Costs
PMI generally runs 0.3% to 1.5% of the loan amount per year. Your rate depends mainly on your credit score and down payment size.
| Loan Amount | PMI at 0.5%/yr | PMI at 1.0%/yr |
|---|---|---|
| $200,000 | $83/month | $167/month |
| $300,000 | $125/month | $250/month |
| $400,000 | $167/month | $333/month |
Over a few years, that can add up to thousands of dollars, which is why removing PMI as soon as you qualify is a smart move.
How to Remove PMI
To cancel PMI, your payments generally need to be current and in good standing. Ask your servicer for their specific requirements and any appraisal they need.
PMI vs FHA Mortgage Insurance
PMI applies to conventional loans and can be removed once you build equity. FHA loans instead charge a mortgage insurance premium (MIP). If your FHA down payment is under 10%, MIP typically lasts the life of the loan, and the usual way to remove it is to refinance into a conventional loan after building equity.
If you took an FHA loan mainly because of a low down payment, keep an eye on your equity. Refinancing to a conventional loan later can eliminate MIP and lower your payment once you qualify.
Is Paying PMI Ever Worth It?
Sometimes, yes. If waiting to save a full 20% means paying rising rents and watching home prices climb for several more years, buying sooner with PMI can be the better financial decision. PMI is temporary on conventional loans, and the equity you build while you own can outweigh the cost.
The key is to have a plan: know your PMI cost, track your equity, and cancel it as soon as you cross the 20% line.