What Is PMI? Private Mortgage Insurance Explained (2026)

PMI — private mortgage insurance — is a policy that protects your lender if you default on your loan. It is not there to protect you. Understanding exactly what it costs, when it is required, and when it ends can save you tens of thousands of dollars over the life of a conventional mortgage.

What Is PMI?

Private mortgage insurance is a type of insurance that a conventional mortgage lender requires when a borrower makes a down payment of less than 20 percent of the home's purchase price. The insurance pays the lender — not the borrower — if the loan goes into default and the home is sold at a loss in foreclosure.

PMI applies specifically to conventional loans — those backed by Fannie Mae or Freddie Mac. Government-backed loans use their own forms of mortgage insurance: the FHA mortgage insurance premium (MIP), the USDA guarantee fee, and the VA funding fee. These are separate programs with different rules.

The key point to internalize: PMI is an expense that benefits the lender, not you. You pay for it every month, but you receive no direct financial protection from the policy.

Why Do Lenders Require PMI?

Lenders use the loan-to-value ratio (LTV) as a measure of risk. LTV is the loan amount divided by the home's appraised value. A borrower who puts 10 percent down starts with a 90 percent LTV — meaning the lender has financed 90 cents of every dollar of home value.

Historical default data shows that loans with LTV ratios above 80 percent carry meaningfully higher default rates than those at or below 80 percent. If a borrower defaults and the lender must foreclose and sell, a property value decline of even 10–15 percent can wipe out the lender's collateral cushion entirely on a high-LTV loan.

PMI closes that gap. It gives the lender a financial backstop so they can confidently offer mortgages to borrowers who haven't yet accumulated a full 20 percent down payment — borrowers who might otherwise be unable to buy a home at all.

The 80 percent LTV threshold is not arbitrary. It reflects the point at which lenders consider the collateral sufficient to cover a foreclosure loss without insurance. Once your LTV drops to 80 percent — either through paying down principal or through home value appreciation — the risk calculus changes in your favor. See the section on cancellation below.

How Much Does PMI Cost?

PMI typically costs between 0.5 percent and 1.5 percent of your original loan amount per year. On a $300,000 loan, that translates to $1,500 to $4,500 per year, or $125 to $375 per month added to your mortgage payment.

Three factors drive your specific PMI rate:

LTV ratio: The higher your LTV, the higher your PMI rate. A borrower at 95 percent LTV pays considerably more than one at 85 percent LTV.
Credit score: Borrowers with higher credit scores are considered lower-risk and receive lower PMI rates. The difference between a 620 credit score and a 740+ score can cut your PMI rate nearly in half.
Loan type: Fixed-rate loans generally carry lower PMI than adjustable-rate mortgages. Longer loan terms can also affect the rate.

The table below shows approximate annual PMI rates (as a percentage of the loan amount) by LTV and credit score. Actual rates vary by insurer and lender.

LTV Ratio	Credit Score 620–639	Credit Score 640–679	Credit Score 680–719	Credit Score 720+
95% (5% down)	1.40%	1.10%	0.90%	0.65%
90% (10% down)	1.15%	0.85%	0.70%	0.50%
85% (15% down)	0.80%	0.60%	0.48%	0.35%

Use our PMI Calculator to estimate your exact monthly cost based on your loan amount, down payment, and credit score range.

How Is PMI Paid?

There are four ways a borrower can pay for PMI. Your lender will offer some or all of these options depending on the loan program and their policies.

Monthly PMI: The most common structure. PMI is added to your monthly mortgage payment as a separate line item. This keeps upfront costs low and the PMI cancels once you reach 80 percent LTV.
Annual (escrowed) PMI: The annual premium is collected at closing and renewed each year through your escrow account. Functionally similar to monthly PMI from a borrower perspective.
Single-premium (upfront) PMI: You pay the entire expected PMI cost as a lump sum at closing, either in cash or rolled into the loan. Monthly payments are lower, but if you sell or refinance early, you may not recoup the upfront cost.
Lender-paid PMI (LPMI): The lender pays the PMI premium and recoups it through a slightly higher interest rate on your loan. There is no separate PMI line item, which can make the mortgage feel cheaper — but the higher rate is permanent and cannot be cancelled. LPMI often costs more over the long run if you stay in the home for many years.

When Does PMI Go Away?

The Homeowners Protection Act of 1998 (HPA) is the federal law that governs PMI cancellation on conventional loans. It creates three distinct cancellation scenarios:

Borrower-requested cancellation at 80% LTV: Once your loan balance drops to 80 percent of the original purchase price (based on the original amortization schedule or extra payments), you can submit a written request to your lender to cancel PMI. Your lender may require that you have a good payment history and, in some cases, a current appraisal confirming the home's value has not declined.
Automatic cancellation at 78% LTV: Under the HPA, lenders must automatically cancel PMI when your loan balance reaches 78 percent of the original purchase price — even if you haven't requested it — as long as your payments are current. This is non-negotiable; lenders cannot charge PMI beyond this point on loans covered by the HPA.
Final termination at the midpoint of the loan: If PMI somehow wasn't cancelled under the first two rules (for example, because the loan balance never fell due to a negative amortization structure), the lender must terminate PMI at the midpoint of the loan's amortization schedule — month 180 on a 30-year loan — as long as payments are current.

Note: The HPA applies to single-family primary residences with loans originated on or after July 29, 1999. It does not apply to FHA loans, which use different cancellation rules.

If your home's value has risen significantly since purchase, you may be able to request early PMI cancellation based on a new appraisal showing LTV at or below 80 percent. Lenders are not legally required to honor this under the HPA, but many will as a matter of policy. Ask your lender specifically about their appraisal-based cancellation policy.

What Is the Difference Between PMI and FHA MIP?

Borrowers often compare conventional loans with PMI to FHA loans with mortgage insurance premiums (MIP). The differences are significant and can determine which loan type is better for your situation.

Feature	PMI (Conventional)	MIP (FHA)
Who it protects	Private lender	FHA/government
Upfront cost	None (with monthly PMI)	1.75% of loan (UFMIP)
Annual cost	0.5%–1.5% of loan	0.55%–1.05% of loan
Cancellable?	Yes, at 80% LTV (borrower request) or 78% (automatic)	Only if down payment was 10%+; otherwise lasts full loan term
Minimum down payment	3% (conventional 97 programs)	3.5% (credit score 580+)
Credit score flexibility	Generally 620+ preferred	580+ for 3.5% down; 500–579 for 10% down

For more on FHA loans, see our complete FHA loan guide and the FHA Loan Calculator.

How Much Does PMI Cost on a $350,000 Home?

Let's make this concrete. Suppose you buy a $350,000 home with 10 percent down ($35,000). Your loan amount is $315,000, and your starting LTV is 90 percent.

Assume you have a credit score of 700 and qualify for a PMI rate of 0.70 percent annually (from the 90% LTV / 680–719 row in the table above).

Annual PMI cost: $315,000 × 0.70% = $2,205/year
Monthly PMI cost: $2,205 ÷ 12 = $184/month

On a 30-year fixed loan at 7.0 percent, your principal and interest payment is approximately $2,096/month. PMI adds $184, bringing the total to $2,280/month while PMI is active.

With a standard amortization schedule and no extra payments, you reach 80 percent LTV (loan balance of $280,000) in approximately month 88 — roughly year 7. At that point you can request PMI cancellation. Automatic cancellation at 78% LTV occurs around month 110 (year 9).

Total PMI paid over 88 months (requesting cancellation at 80% LTV): approximately $16,192. If you wait for automatic cancellation at month 110: approximately $20,240. The lesson: request cancellation proactively when you reach 80 percent LTV.

Want to calculate your own numbers? Use the PMI Calculator to see your monthly PMI cost and the exact month it drops off your payment.

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Frequently Asked Questions

Does PMI protect me as the homebuyer?

No. PMI protects the lender, not you. If you default on the loan, PMI pays the lender for losses. You pay the premium but receive no benefit from it. This is a common misunderstanding — PMI exists solely to reduce lender risk on high-LTV loans.

How do I request PMI cancellation?

Submit a written request to your loan servicer once your loan balance reaches 80% of the original purchase price. You must have a good payment history (no 30-day late payments in the past 12 months, no 60-day late payments in the past 24 months) and may need to certify there are no junior liens. The servicer must respond within 30 days under the Homeowners Protection Act.

Can I get PMI removed if my home has appreciated?

Yes, if you can demonstrate current LTV is at or below 80% based on a new appraisal. Most lenders require at least 2 years of payment history to use appreciation-based cancellation, and some require 5 years. Contact your servicer to ask about their appraisal-based PMI cancellation policy and required seasoning period.

Is PMI the same as homeowners insurance?

No. Homeowners insurance covers damage to your property (fire, theft, natural disasters). PMI covers the lender's loss if you default on the loan. Both may be required by your lender, but they are completely separate policies with separate purposes and costs.

What is single-premium PMI?

Single-premium PMI lets you pay the entire PMI cost upfront at closing in one lump sum, rather than monthly. This eliminates the monthly PMI line item. It can make sense if you have extra cash, plan to stay long-term, and want to lower your monthly payment — but it is not refundable if you sell or refinance early.

This article is for informational purposes only and does not constitute financial, legal, or mortgage advice. Rates and program details change frequently. Consult a licensed mortgage professional for guidance specific to your situation.