Guide · PMI
How PMI works, and when it goes away.
Private mortgage insurance is the price of borrowing with less than 20% down on a conventional loan. The first thing to understand is who it protects: the lender, not you. If the loan defaults, PMI pays the lender part of its loss. You get nothing from it except the loan approval itself — which, to be fair, is the entire point. PMI is what lets people buy with 5% or 10% down instead of waiting years to save 20%.
What it costs
Typically between 0.3% and 1.5% of the loan amount per year, folded into the monthly payment. Where you land in that range depends mostly on your credit score and how small your down payment is. On a $400,000 loan, that's roughly $100 to $500 a month — real money, and money that buys down none of your balance. The good news: unlike your rate, PMI is temporary by law.
The three ways it ends
1. Request removal at 80% LTV. Under the federal Homeowners Protection Act, once your balance falls to 80% of the home's original value (the purchase price or original appraisal), you can request cancellation in writing. The lender can require that you're current on payments and that no second lien exists. This is the date the calculator estimates when you enter your home value — and extra principal payments pull it earlier, sometimes by years.
2. Automatic cancellation at 78%. Do nothing, and the lender must cancel PMI automatically when the balance reaches 78% of original value (if you're current). The gap between 80% and 78% can be a year or more of payments — several hundred to a few thousand dollars of PMI you didn't need to pay. Set a reminder for the 80% date and make the request.
3. Reappraisal after appreciation. The two rules above use the home's original value — but if your market has risen, your real equity may already exceed 20%. Many lenders will remove PMI based on a new appraisal (usually after a minimum seasoning period, often two years, and typically requiring 25% equity in the early years). The appraisal costs a few hundred dollars; if it kills a $200/month PMI charge, it pays for itself in weeks. Call your servicer and ask for their specific requirements — they vary.
Is paying PMI ever the right call?
Often, yes. The alternative to buying with PMI is usually waiting years to save 20% — years of rent paid, years of possible price and rate increases, years of principal not being paid down. If PMI costs $250/month but waiting would cost three more years of $2,200 rent, the math frequently favors buying now and firing PMI later through the rules above. The rent vs. buy worksheet can frame that comparison with your own numbers.
Two cautions. First, don't confuse PMI with FHA mortgage insurance — FHA loans carry their own premiums with different (and stricter) removal rules; with less than 10% down, FHA insurance typically lasts the life of the loan and is usually shed by refinancing to conventional. Second, watch out for "lender-paid PMI," which hides the cost in a permanently higher rate — it can't be cancelled at 80% because officially it doesn't exist.
This guide is general information, not financial or legal advice. Cancellation rules have exceptions (loan type, payment history, property type, investor requirements) — confirm the specifics with your loan servicer.