Mortgage Insurance
Mortgage insurance protects the lender—not you—if you default on your loan. It's required on conventional loans when your down payment is less than 20% (called PMI) and on all FHA loans regardless of down payment size. The cost ranges from 0.5% to 2% of the loan amount annually, added to your monthly payment.
On a $300,000 loan with a 0.8% PMI rate, you'd pay $200/month in mortgage insurance. That adds up to $2,400 per year—real money that provides you no direct benefit. The insurance only protects the lender if you stop paying. This is why building equity to 20% and canceling PMI as quickly as possible is a common financial goal.
For conventional loans, PMI must be automatically canceled when your loan balance reaches 78% of the original purchase price (if you're current on payments). You can also request cancellation once you reach 80% loan-to-value, either through payments or through a new appraisal showing increased home value.
FHA mortgage insurance is more persistent. Loans originated after June 2013 with less than 10% down carry mortgage insurance for the entire life of the loan—it never cancels automatically. That's a key reason many borrowers refinance from FHA to conventional once they build 20% equity. For FHA loans with 10%+ down, MIP cancels after 11 years. Mortgage insurance is required based on the loan program and your down payment—it applies regardless of whether you finance through a direct lender or a mortgage broker.
Key Takeaway
Mortgage insurance protects the lender—not you—if you default on your loan. It's required on conventional loans when your down payment is less than 20% (called PMI) and on all FHA loans regardless of down payment size. The cost ranges from 0.5% to 2% of the loan amount annually, added to your monthly payment.
Related Terms
Frequently Asked Questions
Yes. Put 20% or more down on a conventional loan, or use a piggyback loan (80-10-10 structure) to avoid PMI. VA loans never require mortgage insurance. USDA and FHA loans always require it.
For conventional loans, request cancellation in writing once you reach 80% LTV based on original value, or wait for automatic cancellation at 78% LTV. You may need a new appraisal to document current value if your home has appreciated.
PMI deductibility has been extended and expired multiple times by Congress. Check with a tax professional or the IRS website for the current tax year rules before assuming it's deductible.
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