PMI Explained: When You Need It and How to Remove It
Private Mortgage Insurance costs $100-$400/month on a typical loan. Learn what triggers it, what it costs, and exactly when you can get rid of it.
Private Mortgage Insurance (PMI) is required on conventional mortgage loans when you put less than 20% down. It protects the lender — not you — if you default. PMI typically costs between 0.3% and 1.5% of your loan amount per year, adding $100 to $400 per month on a typical loan. The good news: unlike FHA mortgage insurance, conventional PMI can be removed once you build enough equity.
What Triggers PMI
PMI is required whenever your Loan-to-Value (LTV) ratio exceeds 80%. LTV is calculated as:
LTV = Loan Amount / Home Value x 100
If you buy a $400,000 home with 10% down ($40,000), your loan is $360,000 and your LTV is 90%. Since 90% is above 80%, PMI is required.
The threshold is simple: put 20% or more down, and you never pay PMI. Put anything less than 20% down, and PMI is added to your monthly payment until you reach 80% LTV.
PMI Cost at Different Loan Amounts and Credit Scores
Your PMI rate depends heavily on your credit score and LTV ratio. Higher risk borrowers pay more:
| Loan Amount | Credit 760+ (0.3%) | Credit 720-759 (0.5%) | Credit 680-719 (0.8%) | Credit 640-679 (1.1%) | Credit 620-639 (1.5%) |
|---|---|---|---|---|---|
| $250,000 | $63/mo | $104/mo | $167/mo | $229/mo | $313/mo |
| $350,000 | $88/mo | $146/mo | $233/mo | $321/mo | $438/mo |
| $450,000 | $113/mo | $188/mo | $300/mo | $413/mo | $563/mo |
A borrower with a 620 credit score on a $350,000 loan pays $438 per month in PMI alone — nearly $350 more per month than someone with a 760+ score on the same loan. Improving your credit score before buying can save thousands.
4 Ways to Remove PMI
PMI is not permanent. Here are the four paths to eliminating it:
- Request removal at 80% LTV: Once your loan balance falls to 80% of the original purchase price, contact your lender in writing to request PMI cancellation. Requirements: current on payments, no second liens, and your lender may require proof the home has not declined in value.
- Automatic removal at 78% LTV: Under the Homeowners Protection Act (HPA), your lender must automatically cancel PMI when your loan balance reaches 78% of the original purchase price based on the original payment schedule — no request needed.
- Midpoint termination: Even if you never reach 78% LTV (unlikely but possible on interest-only loans), your lender must remove PMI at the halfway point of your loan. On a 30-year mortgage, that is year 15.
- Reappraisal-based removal: If your home has appreciated significantly, order a new appraisal. If the appraised value puts your current LTV at 80% or below, you can request PMI removal. Some lenders require you to have owned the home for at least 2 years and that you have made no late payments.
PMI vs FHA MIP: A Critical Difference
FHA loans charge their own version of mortgage insurance called MIP (Mortgage Insurance Premium). The differences are significant:
| Feature | Conventional PMI | FHA MIP |
|---|---|---|
| Upfront fee | None | 1.75% of loan (rolled into balance) |
| Annual rate | 0.3% - 1.5% | 0.55% (most borrowers) |
| Can be removed? | Yes, at 80% LTV | Only if 10%+ down (after 11 years) |
| Less than 10% down | Drops at 80% LTV | Stays for the life of the loan |
| Credit score impact on rate | Large impact | Flat rate regardless of score |
The biggest takeaway: if you put less than 10% down on an FHA loan, MIP stays for the entire life of the loan. The only way to remove it is to refinance into a conventional loan once you have 20% equity. This makes FHA loans more expensive long-term for many borrowers.
Strategies to Avoid PMI Entirely
If PMI feels like throwing money away (it largely is), here are strategies to avoid it:
- Save for 20% down: The most straightforward approach. On a $400,000 home, that means $80,000 down.
- Piggyback loan (80-10-10): Take a primary mortgage for 80% of the home value, a second loan (HELOC or home equity loan) for 10%, and put 10% down. No PMI because the first mortgage is at 80% LTV. The catch: the second loan usually has a higher rate.
- Lender-paid PMI (LPMI): Some lenders offer to pay your PMI in exchange for a slightly higher interest rate (typically 0.25% to 0.50% higher). This can be cheaper if you plan to stay less than 7-10 years since there is no separate PMI payment to make. Run the numbers both ways.
- VA loans: If you are a veteran or active-duty military, VA loans require zero down payment and charge no PMI at all. There is a one-time VA funding fee instead.
Monthly Cost Examples on a $400,000 Home
Here is what PMI adds to your payment at different down payment levels (assuming 720 credit score, 0.5% PMI rate):
| Down Payment | Loan Amount | Base P&I (6.75%) | PMI/month | Total Payment |
|---|---|---|---|---|
| 5% ($20K) | $380,000 | $2,464 | $158 | $2,622 |
| 10% ($40K) | $360,000 | $2,334 | $150 | $2,484 |
| 15% ($60K) | $340,000 | $2,205 | $142 | $2,347 |
| 20% ($80K) | $320,000 | $2,075 | $0 | $2,075 |
Credit Score Impact on PMI Rate
Your credit score is the single biggest factor in your PMI rate:
- 760+: 0.19% to 0.35% — lenders see minimal risk
- 740-759: 0.25% to 0.45%
- 720-739: 0.35% to 0.65%
- 700-719: 0.50% to 0.85%
- 680-699: 0.70% to 1.10%
- 660-679: 0.90% to 1.30%
- 640-659: 1.10% to 1.50%
- 620-639: 1.30% to 1.95%
Before buying, check your credit score and consider spending 3 to 6 months improving it if you are below 740. A 60-point improvement could cut your PMI in half.
Practical Takeaway
PMI is a temporary cost that lets you buy sooner with less down — not a permanent penalty. The fastest way to eliminate it: make extra principal payments to reach 80% LTV, then formally request removal from your lender. Use our mortgage calculator to see exactly how PMI affects your payment and when it drops off based on your specific loan details.
Try it yourself
Run the numbers with our interactive calculator — drag a slider and watch the chart update instantly.
Open calculatorThis article is for educational purposes only and does not constitute financial advice. Consult a licensed financial advisor for decisions specific to your situation.