Updated April 22, 2026
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Estimate your mortgage payment including PMI, taxes, and insurance.
PMI stands for private mortgage insurance. Lenders require it when you buy a home with less than 20 percent down on a conventional loan. It typically costs 0.5 to 1.5 percent of your loan amount per year, paid monthly, and it protects the lender, not you, if you default. Once your equity reaches 20 percent of the original purchase price, you can request cancellation. At 22 percent equity, federal law requires the lender to cancel it automatically.
Why lenders require PMI
Mortgage lenders are in the business of getting paid back. A borrower who puts 3 or 5 percent down has very little skin in the game in the early years. If home prices drop even modestly and that borrower defaults, the lender recovers less than the outstanding balance through foreclosure. PMI covers that gap. The insurance pays the lender a portion of the loss if you walk away.
PMI is specifically a conventional loan product. FHA loans carry their own version called mortgage insurance premium (MIP), which behaves differently and can last for the life of the loan. VA loans and USDA loans have their own funding fee structures. This article covers conventional PMI only.
How much does PMI cost
The CFPB's consumer guidance on PMI puts the typical range at 0.5 to 1.5 percent of the loan amount annually. On a $350,000 loan at 1 percent, that is $3,500 per year, or about $292 per month added to your payment. On the same loan at 0.5 percent, it is $146 per month. Your rate will depend on your credit score, your down payment amount, and the loan-to-value ratio at origination.
Borrowers with credit scores above 760 and a 10 percent down payment tend to get rates at the low end of that range. Borrowers putting down 3 percent with scores around 640 tend to land near the top. A few hundred dollars per month is not trivial, and it adds up: at $200 per month for five years while you wait for equity to build, you will have paid $12,000 in premiums that provided zero direct benefit to you.
When PMI kicks in and when it is required
Conventional loans backed by Fannie Mae or Freddie Mac require PMI whenever the loan-to-value ratio (LTV) at origination exceeds 80 percent. LTV is simple: if you put 5 percent down, your starting LTV is 95 percent. If you put 15 percent down, it is 85 percent. Anywhere above 80, PMI is required on a standard conventional product.
The affordability calculation for a home purchase should always include your estimated PMI, because it affects your total monthly payment and therefore your qualifying debt-to-income ratio.
How LTV is calculated and why it matters for cancellation
LTV = (outstanding loan balance) divided by (original appraised value or purchase price, whichever is lower) multiplied by 100. When that number drops below 80, you have the right to request PMI cancellation under the Homeowners Protection Act of 1998. When it reaches 78 percent automatically through scheduled amortization payments, the lender must cancel PMI without any action on your part, assuming your account is current.
Note that the 78 percent automatic termination is based on the original value, not the current market value. If your home has appreciated significantly but your loan balance is still at, say, 82 percent of the original purchase price, the automatic rule has not yet triggered. However, you may be able to request cancellation based on a new appraisal showing a higher current value, which is covered in the next section.
Three ways to get rid of PMI
1. Wait for automatic termination. Make your scheduled payments and PMI terminates automatically when your balance reaches 78 percent of the original purchase price. No call required, no appraisal. Just patience. The catch is that on a 30-year loan with a small down payment, this can take nine to twelve years, depending on the interest rate. Use the amortization breakdown to see exactly when your balance hits that threshold.
2. Request cancellation at 80 percent LTV. Under the Homeowners Protection Act, you can request PMI cancellation in writing once your loan balance reaches 80 percent of the original value. The lender can require that you have a good payment history (no 30-day late payments in the past 12 months, no 60-day late payments in the past 24 months), and may require an appraisal to confirm the value has not declined. If your home's value has held or risen, this is the path to canceling PMI several months or even years ahead of the automatic 78 percent threshold.
3. Request a new appraisal if your home has appreciated. If home values in your area have increased since you bought, you may have already crossed the 80 percent LTV threshold based on current market value, even if your loan balance relative to the original purchase price is still higher than 80 percent. You can pay for a new appraisal (typically $300 to $600) and request PMI cancellation based on the updated value. The lender is not required to accept this under the Homeowners Protection Act for automatic cancellation, but many servicers have discretion to approve it under their own policies. Call your servicer and ask about their process before ordering the appraisal.
How PMI affects your APR
PMI is sometimes excluded from advertised mortgage rates and APR figures, which can make initial loan comparisons misleading. When comparing two loan offers, ask each lender to include the estimated PMI in their cost breakdown. Understanding the full cost picture, including what the APR includes versus what it does not, helps you compare loans accurately on a total monthly cost basis.
Avoiding PMI from the start
Three approaches let you skip PMI altogether at origination. First, put 20 percent or more down. Second, use a piggyback loan structure, sometimes called an 80-10-10. You take a first mortgage at 80 percent of the purchase price, a second mortgage (typically a home equity loan or HELOC) at 10 percent, and pay 10 percent as your down payment. No PMI, because the first mortgage LTV is at exactly 80. The second mortgage carries a higher rate, so run the math to confirm it beats the PMI cost. Third, look at lender-paid PMI. The lender covers the premium in exchange for a higher interest rate. This can make sense if you plan to sell or refinance within a few years before the higher rate compounds too much interest.
PMI vs. MIP: the FHA difference
FHA loans use mortgage insurance premium (MIP) rather than PMI, and the rules are materially different. FHA MIP includes an upfront premium of 1.75 percent of the loan amount, plus an annual premium that ranges from 0.45 to 1.05 percent depending on loan term and LTV. For FHA loans originated after June 2013 with a down payment below 10 percent, MIP lasts for the life of the loan. You cannot cancel it by reaching 80 percent LTV; the only exit is to refinance into a conventional loan once you have built sufficient equity. This is a meaningful consideration when choosing between FHA and conventional financing.
What happens to your PMI when you refinance
Refinancing starts the clock over. The new lender evaluates LTV at the time of the refinance, based on the new appraisal. If your home has appreciated and your remaining balance is below 80 percent of the current appraised value, you can refinance into a conventional loan with no PMI. This is one of the reasons homeowners in appreciating markets sometimes refinance even when rates are not dramatically lower: eliminating PMI alone can lower the monthly payment enough to justify the closing costs. Use the refinance calculator to run the break-even math before committing.
PMI cost estimates are illustrative and based on typical market rates. Your actual PMI premium depends on your lender, credit profile, and loan-to-value ratio. Not financial advice.
Run your numbers
Estimate your mortgage payment including PMI, taxes, and insurance.