# Private mortgage insurance

> Private mortgage insurance is coverage that protects the lender if you stop paying a conventional loan. Lenders usually require it when you put less than 20% down, and it can be cancelled once you build enough equity.

Also called: PMI, conventional mortgage insurance. Topic: Mortgages and loans.

PMI is what makes a small down payment possible on a [conventional loan](https://brokerandagent.com/glossary#conventional-loan). You pay for it, but it protects the lender, not you, if you stop making payments.

## When do you need PMI?

Lenders usually require it on a conventional loan when your [down payment](https://brokerandagent.com/glossary#down-payment) is less than 20% of the price, which is the same as a [loan-to-value ratio](https://brokerandagent.com/glossary#loan-to-value-ratio) above 80%. It can also apply to a [refinance](https://brokerandagent.com/glossary#refinance) when you have less than 20% equity.

Government-backed loans work differently. FHA loans charge their own [mortgage insurance premium](https://brokerandagent.com/glossary#mortgage-insurance-premium), and VA loans have no monthly mortgage insurance but most borrowers pay a one-time [VA funding fee](https://brokerandagent.com/glossary#va-funding-fee).

## How much does PMI cost?

It depends mostly on your [credit score](https://brokerandagent.com/glossary#credit-score) and how much you put down. The CFPB says PMI rates vary by down payment and credit score and are generally cheaper than FHA mortgage insurance for borrowers with good credit.

PMI is usually priced as a yearly percentage of the loan and split into monthly payments. Your [Loan Estimate](https://brokerandagent.com/glossary/loan-estimate) shows the actual amount, so compare it across lenders the way you’d compare rates.

## How is PMI paid?

Most borrowers pay it monthly as part of the mortgage payment. Other options are a single premium paid upfront at closing, or a mix of upfront and monthly.

Some lenders also offer lender-paid mortgage insurance, built into a higher interest rate. Because it’s part of the rate, it lasts as long as the loan unless you refinance, so compare the long-run cost before choosing it.

## When does PMI go away?

For loans on a primary home that closed on or after July 29, 1999, the Homeowners Protection Act gives you two exits. 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 earlier if extra payments get you there sooner. It must end automatically when the balance is scheduled to reach 78%.

To cancel at 80%, you generally need a good payment history, to be current, no second mortgage or other junior liens, and possibly proof such as an appraisal that the home hasn’t lost value. Even if neither point is reached, PMI must end the month after the loan’s midpoint, year 15 of a 30-year loan, as long as you’re current.

“Original value” means the lower of the price or the appraised value when you bought. If your home has gained value since, some lenders will consider removing PMI based on a new appraisal under their own rules; ask your servicer.

## PMI on a $400,000 home with 10% down

| | |
| --- | --- |
| Purchase price | $400,000 |
| Down payment (10%) | $40,000 |
| Loan amount | $360,000 |
| PMI rate (assumed) | 0.5% a year |
| PMI cost | $1,800 a year, $150/month |
| Balance where you can ask to cancel (80%) | $320,000 |
| Balance where it ends automatically (78%) | $312,000 |

The 0.5% rate is an assumption; real quotes depend on your credit score and down payment. On a 30-year fixed loan at 6.5%, the scheduled balance reaches $320,000 in about 8 years and $312,000 in about 9.

## Common mistakes

- Thinking PMI protects you. It protects the lender.
- Waiting for automatic removal at 78% when you could ask for it at 80%.
- Assuming FHA mortgage insurance follows the same removal rules. It doesn’t.

## Questions

### How can you avoid PMI?

Put at least 20% down on a conventional loan. Other routes include a VA loan, which has no monthly mortgage insurance, or a lender-paid option built into a higher rate; compare the total cost with your lender.

### Does PMI go away on its own?

Yes. On most conventional loans for a primary home, it must end when the balance is scheduled to reach 78% of the original value, and no later than the month after the loan’s midpoint, as long as you’re current on payments.

### Is PMI the same as homeowners insurance?

No. [homeowners insurance](https://brokerandagent.com/glossary#homeowners-insurance) covers your home and belongings and protects you. PMI covers the lender’s loss if you default.

Calculator: [Mortgage calculator](https://brokerandagent.com/tools/mortgage-calculator)

## Related terms

- [Down payment](https://brokerandagent.com/glossary#down-payment): A down payment is the part of a home’s price you pay in cash at closing instead of borrowing. It’s usually stated as a percentage of the price, and less than 20% down on a conventional loan typically means paying mortgage insurance.
- [Loan-to-value ratio](https://brokerandagent.com/glossary#loan-to-value-ratio): Loan-to-value ratio is the mortgage amount divided by the home’s value, usually the lower of the price or the appraised value. A $360,000 loan on a $400,000 home is 90% LTV; a lower LTV generally means better terms.
- [Mortgage insurance premium](https://brokerandagent.com/glossary#mortgage-insurance-premium): A mortgage insurance premium is the insurance charge on an FHA loan: an upfront premium of 1.75% of the base loan, usually financed, plus an annual premium paid monthly that lasts the life of the loan with less than 10% down.
- [Conventional loan](https://brokerandagent.com/glossary#conventional-loan): A conventional loan is a mortgage that isn’t insured or guaranteed by a government agency such as FHA, VA or USDA. Most follow Fannie Mae and Freddie Mac rules and require mortgage insurance with less than 20% down.
- [PITI](https://brokerandagent.com/glossary#piti): PITI stands for principal, interest, taxes and insurance, the four main parts of a monthly mortgage payment. Lenders add mortgage insurance and HOA dues where they apply to figure what you can afford.

## Sources

- [CFPB: What is private mortgage insurance?](https://www.consumerfinance.gov/ask-cfpb/what-is-private-mortgage-insurance-en-122/)
- [CFPB: When can I remove PMI from my loan?](https://www.consumerfinance.gov/ask-cfpb/when-can-i-remove-private-mortgage-insurance-pmi-from-my-loan-en-202/)
- [CFPB: What is mortgage insurance and how does it work?](https://www.consumerfinance.gov/ask-cfpb/what-is-mortgage-insurance-and-how-does-it-work-en-1953/)

Checked 2026-10-02 by the Broker & Agent team. General information, not legal, tax or lending advice.

Source: https://brokerandagent.com/glossary/private-mortgage-insurance