What Is PMI? How Private Mortgage Insurance Works and How to Remove It

Updated November 8, 2026

Private mortgage insurance (PMI) is a monthly cost that many buyers pay when they put down less than 20% on a conventional loan. It is easy to overlook when you are comparing homes, but it can add a meaningful amount to your payment. Here is what it is, what it costs and how to get rid of it.

What PMI actually protects

PMI protects the lender, not you. If you stop paying and the home is sold for less than you owe, the insurer covers part of the lender's loss. In exchange, lenders are willing to approve loans with small down payments. That is the real benefit to you: PMI can let you buy sooner than you could if you had to save a full 20%.

How much PMI costs

PMI is usually quoted as a yearly percentage of the loan amount. The rate depends mostly on your credit score, your down payment and the type of loan. Lower scores and smaller down payments mean higher rates.

As an example, at a PMI rate of 0.6% on a $350,000 loan:

$350,000 × 0.6% ÷ 12 = $175 per month

Over five years, that is $10,500 that does not build equity. Your lender must show the actual PMI cost on your Loan Estimate, so use that number once you have it.

When PMI goes away

For most conventional loans on a primary home, federal law (the Homeowners Protection Act) sets out two important points:

At 80%: you can ask your servicer in writing to cancel PMI once your balance is scheduled to reach 80% of the home's original value, or when you reach it through extra payments. You generally need a good payment history, and the lender may require proof that the home has not lost value.
At 78%: PMI must end automatically when your balance is scheduled to reach 78% of the original value, as long as you are current on your payments.

Ways to remove PMI sooner

Make extra principal payments to reach the 80% mark faster.
Ask about a new appraisal. If your home has gained value, some lenders will use the new value. Rules vary, and you normally pay for the appraisal.
Refinance once you have at least 20% equity. This only makes sense if the closing costs are worth it, so run the break-even numbers first.

PMI vs. FHA mortgage insurance

FHA loans do not use PMI. They charge their own mortgage insurance premium (MIP), which includes an upfront fee and an annual premium. The key difference is how long it lasts: on many FHA loans with a small down payment, MIP stays for the life of the loan, and the usual way to remove it is to refinance into a conventional loan. VA loans have no monthly mortgage insurance but usually charge a one-time funding fee, and USDA loans have their own guarantee fees.

Is it worth paying PMI?

Not always a bad deal. If waiting to save 20% would take years, PMI may cost less than the rent you would pay and the home appreciation you might miss in that time. On the other hand, stretching to buy with a very small down payment leaves little equity if prices fall. A practical test is to run your numbers both ways and see whether the payment with PMI still leaves room for savings and repairs.

Try the free Mortgage Calculator

This article is general information, not financial, tax, legal or insurance advice. Figures are illustrative examples.