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What Is PMI? Private Mortgage Insurance, Explained
PMI — private mortgage insurance — is insurance your lender requires when your down payment on a conventional mortgage is less than 20% of the purchase price. Here's the part that surprises most buyers: you pay for it, but it protects the lender, not you. If you default, PMI reimburses the lender for part of its loss. You get nothing from it except permission to borrow with less money down.
That sounds like a bad deal, and priced wrong, it is. But PMI is also the mechanism that lets you buy a home with 5% or 10% down instead of waiting years to save 20% — and in a rising market, waiting has a price too. This guide covers what PMI actually costs, how it's charged, how to get rid of it, and how to decide whether paying it is worth it in your situation.
What PMI costs
PMI typically costs 0.46% to 1.5% of the original loan amount per year, divided into monthly installments. On a $300,000 loan, that's roughly $115 to $375 per month added to your payment.
Where you land in that range depends mostly on two things:
Credit score. Borrowers above 760 pay near the bottom of the range; below 680, rates climb quickly. The spread between excellent and fair credit can be more than double.
Down payment size. 15% down costs meaningfully less than 5% down. The less equity you start with, the more risk the insurer prices in.
Most borrowers pay PMI as a monthly premium, but there are two variants worth knowing about. Single-premium PMI is a one-time upfront payment (or a cost rolled into the loan) that removes the monthly charge — it can pay off if you'll keep the loan for years, but you don't get a refund if you sell or refinance early. Lender-paid PMI buries the cost in a permanently higher interest rate; the "no PMI" pitch sounds appealing, but unlike regular PMI, you can never cancel it.
How to get rid of PMI
PMI is temporary by law. The federal Homeowners Protection Act gives you three exit ramps on a conventional loan:
At 80% of original value — you can request cancellation. Once your loan balance falls to 80% of the home's value at purchase (through payments or extra principal), you can ask your servicer in writing to drop PMI. You'll need to be current on payments, and the servicer may require evidence the value hasn't declined.
At 78% — cancellation is automatic. Your lender must remove PMI on the date your balance is scheduled to hit 78% of the original value, as long as you're current. No paperwork required — but don't wait for this if you qualify at 80%; the difference can be a year or more of premiums.
Through appreciation — often the fastest route. The 80%/78% triggers use your home's original value, but if your market has appreciated, your actual equity may already exceed 20%. Many servicers will cancel PMI based on a new appraisal (typically $400–$600) after a seasoning period — commonly two years, or sooner with substantial improvements. If your home has gained even 10% since purchase, this math is worth running: a one-time appraisal fee against $100–$300 a month, every month, indefinitely. Refinancing accomplishes the same thing if rates make sense — our Refinance Break-Even Calculator will tell you whether it does.
PMI vs. FHA mortgage insurance (MIP)
PMI applies to conventional loans. FHA loans have their own version — MIP (mortgage insurance premium) — and the differences matter more than the similar names suggest.
FHA charges an upfront premium of 1.75% of the loan amount at closing (usually rolled into the loan), plus an annual premium — typically 0.50%–0.55% for most borrowers. The rate is roughly comparable to mid-range PMI, and FHA doesn't price it by credit score, which is why FHA often beats conventional for buyers with lower scores.
The catch is duration: if you put less than 10% down on an FHA loan, MIP lasts for the life of the loan. There is no 78% automatic cancellation. The standard playbook is to use FHA to get in the door, then refinance into a conventional loan once you reach 20% equity — trading MIP for no mortgage insurance at all. VA loans, for eligible veterans and service members, charge a one-time funding fee but no monthly mortgage insurance whatsoever.
How to avoid PMI entirely
The obvious route is 20% down. Beyond that: a piggyback loan (an "80-10-10" — 80% first mortgage, 10% second loan, 10% down) sidesteps PMI, though the second loan carries a higher rate and its own closing costs, so compare total monthly cost rather than assuming it wins. Lender-paid PMI, as noted above, avoids the line item but not the cost. And VA eligibility, if you have it, is usually the best deal in the market. What's rarely the right answer is draining your emergency fund to hit exactly 20% — starting homeownership with no cash buffer costs more than PMI the first time something breaks.
Is paying PMI worth it?
Here's the reframe that makes the decision clearer: PMI isn't really insurance you're buying — it's the price of buying now instead of later. So the honest comparison isn't "PMI vs. no PMI." It's "buy now with PMI" vs. "keep renting while saving toward 20%."
Say you're $30,000 short of 20% down on a $375,000 home and can save $1,000 a month. That's two and a half more years of renting. If rent runs $1,800/month, you'll spend $54,000 on rent while you save — against PMI that might cost $150–$250 a month for the first several years of ownership, during which you're also building equity and locking in today's price. If prices in your market rise even modestly over those 30 months, the 20% target moves away from you as you chase it.
That math doesn't always favor buying — in expensive markets with soft prices and cheap rent, waiting can win. Which is exactly why this is a calculation, not a rule of thumb. Start with how much house you can afford (our calculator includes PMI in the payment whenever your down payment is under 20%), then pressure-test the buy-vs-wait question with the Rent vs. Buy Calculator.
See exactly what your monthly payment looks like with PMI included — and get a Worth It Score for the loan structure.
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By Sean Baldwin · Last reviewed July 2026 · Part of the Mortgage Payment Calculator guide.