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What is private mortgage insurance (PMI)?

Private mortgage insurance (PMI) is a type of insurance that protects your lender if you stop making mortgage payments. It is required on most conventional loans when your down payment is less than 20% of the home purchase price — in other words, when your loan-to-value (LTV) ratio is greater than 80%.

PMI does not protect you as the borrower. It does not cover your mortgage payments if you lose your job, and it does not protect your home equity. The coverage is entirely for the lender's benefit, yet you pay the premium — typically as an addition to your monthly mortgage payment.

The reason lenders require PMI below 20% down is simple: loans with less equity carry higher default risk. PMI compensates the lender for that risk, which is also why it allows lenders to offer conventional mortgages to borrowers with smaller down payments at competitive rates. Without PMI, many lenders would require 20% down or charge significantly higher interest rates to compensate for the risk.

How PMI rates are determined

PMI rates are set by private mortgage insurers — companies like MGIC, Radian, Genworth, and Essent — and vary based on several risk factors. The two most important are your LTV ratio (how much you borrowed relative to the home's value) and your credit score (how reliably you have managed debt in the past).

Additional factors include your loan term (15-year vs. 30-year), whether the rate is fixed or adjustable, and whether the property is a primary residence, second home, or investment property. Our calculator uses industry-standard rate tiers sourced from CFPB data and lender rate cards:

Rates are estimates based on CFPB data and industry averages for 30-year fixed conventional loans with LTV between 80.01% and 95%. Actual rates vary by insurer and lender.

The LTV also affects your rate independently of credit score. At 85% LTV you will generally pay less than at 95% LTV, because the lender is exposed to less potential loss. When evaluating PMI cost, raising your down payment from 5% to 10% on a $350,000 home may lower both your PMI rate and your loan amount — a double saving.

When and how to remove PMI

The Homeowners Protection Act (HPA), a federal law enacted in 1998, gives borrowers specific rights regarding PMI cancellation. There are three ways PMI can end:

1. Borrower-requested cancellation (80% LTV)

You can submit a written request to cancel PMI once your loan balance reaches 80% of the original appraised value. Your lender must honor the request if you are current on payments and can demonstrate through an appraisal (if required by the lender) that the value has not declined. This is the fastest way to remove PMI if you have made extra principal payments.

2. Automatic cancellation (78% LTV)

Under the HPA, lenders must automatically cancel PMI when your balance reaches 78% of the original value based on your scheduled amortization — even if you never request it. Note: this is based on the payment schedule, not when you actually reach 78% LTV. If you make extra payments, you will likely reach 78% LTV before the scheduled date — but you must request cancellation proactively to benefit.

3. Mid-point termination

For loans that never reach 78% LTV (e.g., some interest-only structures), the lender must terminate PMI on the first day of the month following the midpoint of the loan term — for a 30-year loan, that is year 15. This is a backstop protection regardless of LTV.

PMI cost examples

The following three examples illustrate how down payment size and credit score interact to determine total PMI cost. All examples assume a 6.89% interest rate on a 30-year fixed conventional loan.

Example 1: First-time buyer, 5% down, good credit

With only 5% down, this buyer pays PMI for nearly 11 years before the loan balance drops below 80% LTV. Total PMI cost of $17,931 is a significant but manageable tradeoff for getting into the market with a smaller down payment.

Example 2: Move-up buyer, 10% down, excellent credit

An excellent credit score drops the PMI rate to 0.30% — the most favorable tier. Combined with 10% down, this buyer pays only $9,000 in total PMI before reaching the cancellation threshold about 2 years earlier than Example 1.

Example 3: Same home, 10% down, fair credit

With the same home price and down payment as Example 2 but a fair credit score instead of excellent, the PMI rate triples from 0.30% to 0.90%. The result: $23,600 in total PMI — more than 2.6× the cost of Example 2. This illustrates why improving your credit score before buying can save tens of thousands of dollars.

PMI vs. FHA MIP: key differences

Both PMI and FHA mortgage insurance protect the lender against default, but they differ significantly in cost, duration, and flexibility:

For borrowers with a credit score of 680 or above, conventional PMI is typically a better choice than FHA MIP over the long run — primarily because it can be removed when you reach 20% equity. FHA MIP that lasts the full 30-year term can cost $50,000 or more over the life of the loan, even after the upfront fee.

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