What PMI Actually Is
Private Mortgage Insurance is a policy the lender purchases from a third-party insurer when your loan-to-value (LTV) is above 80% on a conventional mortgage. The premium is added to your monthly payment. PMI does not go toward your principal, does not build equity, and does not protect you — it protects the lender against loss if you default and the property sells for less than the loan balance.
How Much Does PMI Cost?
Monthly PMI on a conventional loan typically ranges from 0.19% to 1.86% of the loan amount annually, depending on:
- Your credit score (bigger factor than most borrowers realize)
- Your loan-to-value ratio (95% LTV costs more than 90% LTV)
- Fixed vs. adjustable rate
- Whether it's a primary, second home, or investment property
- Debt-to-income ratio
On a $300,000 loan at 95% LTV, that's roughly $50–$300 per month. Higher credit scores dramatically reduce the premium.
The Four Types of Mortgage Insurance
1. Borrower-Paid Monthly PMI (BPMI)
The default. Paid monthly, cancellable once you reach 80% LTV. Most flexible option.
2. Lender-Paid PMI (LPMI)
The lender absorbs PMI in exchange for a slightly higher interest rate — usually about 0.25% higher. Cannot be cancelled; the only way out is a refinance.
3. Single-Premium PMI
Pay PMI as a lump sum at closing (usually 1.5%–3% of the loan). Can be paid by the seller as a concession. No monthly PMI. Not refundable if you refinance or sell early.
4. FHA MIP (Mortgage Insurance Premium)
Two parts: (1) an upfront premium of 1.75% of the loan amount rolled into the loan at closing, plus (2) a monthly premium of 0.15%–0.75% depending on term and LTV. On most FHA loans made after June 2013, monthly MIP lasts the life of the loan if you put less than 10% down.
How to Remove PMI (Conventional Loans)
- Automatic termination at 78% LTV: your servicer must cancel PMI on the scheduled date the balance would reach 78% of original property value, provided your payments are current.
- Borrower-requested cancellation at 80% LTV: submit a written request once your balance reaches 80% of original value. Loan must be seasoned (typically 2+ years) and payments current.
- Cancellation based on current market value: if your home has appreciated, request a new appraisal (usually at your expense) and cancel at 80% LTV based on current value — typically after 2 years of seasoning, or 75% LTV after 5 years.
- Refinance: if you have 20%+ equity, refinance into a new conventional loan with no PMI.
How to Remove FHA MIP
On post-2013 FHA loans with under 10% down, MIP is permanent. The only exit is to refinance into a conventional loan once you have 20% equity — usually a smart move once appreciation and paydown get you there.
VA & USDA are different
Common Questions
When can I cancel PMI on a conventional loan?
By law (Homeowners Protection Act) your lender must automatically cancel PMI when your loan reaches 78% LTV of the original property value on schedule. You can request cancellation earlier once your balance reaches 80% LTV of the original value, provided your payments are current and the loan is seasoned.
Can I remove PMI by getting a new appraisal?
Yes, on conventional loans. If home values have risen enough that you're at 80% LTV based on current market value, most servicers will remove PMI after a new appraisal (typically requires the loan to be seasoned at least 2 years, or 5 years for a value-appreciation removal at 75% LTV).
Does FHA MIP ever go away?
For most FHA loans originated after June 2013, MIP lasts the life of the loan if you put less than 10% down. The only way to eliminate it is to refinance out of FHA into a conventional loan once you have 20% equity.
Do VA loans have mortgage insurance?
No. VA loans have no monthly mortgage insurance. Instead, most borrowers pay a one-time VA funding fee at closing, which can be financed into the loan.
What to Do Next
If you're buying, we'll compare PMI cost side-by-side with a slightly higher-rate LPMI option so you can pick the cheaper long run. If you already have PMI and think you're close to 80% LTV, call us and we'll pull your servicer's cancellation rules and tell you whether it's cheaper to request removal or refinance.