PMI
PMI (Private Mortgage Insurance) is required on conventional loans when your down payment is less than 20% of the home's purchase price. It protects the lender if you default, and costs 0.5–1.5% of the loan amount annually. On a $350,000 loan at 0.8% PMI, that's $233/month added to your payment—until you reach 20% equity.
PMI is calculated as a percentage of your loan balance each year, divided into monthly payments. The rate depends on your credit score, loan-to-value ratio, and loan type. A borrower with a 760 credit score and 10% down might pay 0.5% PMI, while a 680-score borrower at 5% down might pay 1.3%. On a $350,000 loan, the difference is $175 vs. $379/month.
The Homeowners Protection Act (1998) gives you the right to request PMI cancellation once your loan balance reaches 80% of the original appraised value, and requires automatic cancellation at 78% LTV. If your home has appreciated, you can order a new appraisal and request cancellation based on current value (this only applies to conventional loans; FHA MIP has different rules).
Alternatives to paying PMI include making a 20% down payment, using a piggyback loan (e.g., 80-10-10: 80% first mortgage, 10% second mortgage, 10% down payment), or choosing lender-paid PMI (LPMI), where the lender pays the premium in exchange for a slightly higher interest rate. LPMI cannot be canceled since it's baked into the rate.
Key Takeaway
PMI (Private Mortgage Insurance) is required on conventional loans when your down payment is less than 20% of the home's purchase price. It protects the lender if you default, and costs 0.5–1.5% of the loan amount annually. On a $350,000 loan at 0.8% PMI, that's $233/month added to your payment—until you reach 20% equity.
Related Terms
Frequently Asked Questions
Pay down your loan to 80% of original value and request cancellation in writing. Or refinance once your home has enough equity. PMI automatically cancels at 78% LTV if you're current on payments.
Often yes. PMI costs $100–$400/month but enables homeownership years earlier. In appreciating markets, the equity gains can far outweigh PMI costs. Run the numbers for your local market.
No. PMI protects the lender, not you. If you lose your job and can't pay, you're still at risk of foreclosure. PMI simply means the lender won't lose money when they sell your foreclosed home.
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