What Is PMI (Private Mortgage Insurance) and How to Avoid It

By the USPaycheckGuide Editorial Team · Reviewed by Shaharyar Abid · Last updated September 29, 2026

If you are buying a home with less than 20% down, you will probably hear about PMI. Here is what it is, what it costs and how to get rid of it.

1. What Is PMI?

Private mortgage insurance is a policy required by lenders on many conventional loans when the down payment is below 20%. It protects the lender if you default. It does not protect you, but it helps you buy sooner with less cash.

2. How Much Does PMI Cost?

Costs vary with your credit score, down payment and loan size, often ranging from roughly 0.3% to 1.5% of the loan amount per year, added to your monthly payment. On a $300,000 loan, that could be $75 to $375 a month.

PMI rates depend on your credit score, down payment percentage, loan type and loan amount. Rates commonly range from roughly 0.3% to 1.5% of the loan amount per year. On a $300,000 loan, that is about $900 to $4,500 a year, or $75 to $375 a month. A borrower with a 760 score and 10% down usually pays far less than a borrower with a 660 score and 5% down. Ask lenders for quotes with different down payments so you can compare total monthly costs.

Types of PMI include borrower-paid monthly PMI, single-premium PMI paid upfront, lender-paid PMI built into a higher interest rate, and split-premium PMI. Each has different costs and cancellation rules. Lender-paid PMI usually cannot be canceled, since it is in the rate, so make sure you will keep the loan long enough to justify it.

3. When Does PMI End?

On conventional loans, you can generally ask your servicer to cancel PMI once your loan balance reaches 80% of the home's original value, and it must usually end automatically at 78% if you are current on payments. Extra principal payments or rising home values can speed this up.

4. Ways to Avoid PMI

Put down 20%; use a lender-paid PMI option with a slightly higher rate; consider a piggyback second loan; or explore programs such as VA loans that do not require monthly mortgage insurance. Compare the total cost of each path.

5. PMI vs FHA Mortgage Insurance

FHA loans require their own mortgage insurance premiums, which can last for the life of the loan depending on your down payment. Compare both when choosing a loan type.

6. Plan for It in Your Budget

Add PMI when estimating your payment with our mortgage payment calculator, and see our guide on how much house you can afford.

7. Cost Example

On a $320,000 loan with a PMI rate of 0.7%, PMI costs about $2,240 a year, or roughly $187 a month. If you can pay down the loan to 80% of the home's original value and request cancellation, you could stop that payment, saving over $2,000 a year. On some loans you can accelerate the timeline by making extra principal payments.

8. Common Mistakes

• Waiting for automatic removal without checking whether you can request cancellation sooner.
• Assuming PMI applies to all loans.
• Ignoring the cost of a piggyback loan.
• Not asking your lender how PMI is priced.

9. Key Takeaways

• PMI protects the lender.
• 20% down avoids it on conventional loans.
• You can usually request removal at 80% loan-to-value.

10. When and How PMI Ends

1. Request cancellation at 80% loan-to-value. Once your balance reaches 80% of the original home value, you can ask your servicer to cancel PMI, provided you are current on payments and have no subordinate liens.
2. Automatic termination at 78%. Servicers must generally terminate PMI when your balance is scheduled to reach 78% of the original value.
3. Final termination. PMI must end at the midpoint of the loan's amortization period if you are current.
4. Appraisal-based removal. If your home value rose significantly, you may request removal based on a new appraisal, subject to lender rules and seasoning periods.

You can speed up cancellation by making extra principal payments. Track your balance and estimated value; see how to pay off your mortgage early.

11. Ways to Avoid PMI: Pros and Cons

• Put down 20%: avoids PMI but requires more cash. Consider down payment assistance to help. See assistance programs.
• Piggyback (80/10/10) loan: a first mortgage for 80% and a second loan for 10% with 10% down. It avoids PMI but the second loan often has a higher rate.
• Lender-paid PMI: the lender covers PMI in exchange for a higher rate. It may lower the monthly payment but cannot be canceled.
• VA loans: no monthly mortgage insurance for eligible borrowers. See VA loans explained.
• Wait and save: if home prices and rates allow, saving longer may be cheaper than paying PMI, but rising prices or rates can offset that.

12. PMI vs FHA Mortgage Insurance vs Other Insurance

PMI applies to conventional loans with less than 20% down. FHA loans require an upfront mortgage insurance premium and annual premiums, and on many FHA loans with low down payments the annual premium lasts for the life of the loan, unless you refinance. That is why some FHA borrowers later refinance into a conventional loan. Mortgage insurance is different from homeowners insurance, which protects the property, and from mortgage life insurance. Read FHA loans explained and homeowners insurance guide.

13. Is PMI Worth It? A Decision Framework

PMI can be worth it if it allows you to buy sooner in a market where prices are rising, if you have stable income and a plan to build equity and if your alternative is renting for years. It may not be worth it if the payment strains your budget or if you can reach 20% down in a short time. Estimate the total cost by multiplying the annual PMI by the number of years until you expect to reach 80% loan-to-value. Compare that with rent and potential appreciation using the rent vs buy guide and the mortgage payment calculator.

14. A Full Cost Comparison: PMI vs Piggyback vs 20% Down

Consider a $350,000 home. With 20% down ($70,000), the loan is $280,000 and there is no PMI. With 10% down ($35,000), the loan is $315,000, and PMI at 0.6% would add about $1,890 a year, or roughly $158 a month, until you reach 80% loan-to-value. With 5% down ($17,500), the loan is $332,500 and PMI at 0.9% would cost about $2,990 a year, or about $249 a month.

A piggyback loan structure, such as an 80/10/10, uses a first mortgage for 80%, a second loan for 10% and 10% down. The second loan often has a higher rate and may be a HELOC with a variable rate. The combined payment may be lower or higher than a PMI loan depending on rates. Ask lenders for side-by-side estimates of total monthly payment, total interest over five and ten years, and any fees.

When comparing, remember that PMI can be removed, while a second mortgage has to be paid off or refinanced. If you expect your home to appreciate or you plan to pay down the loan quickly, PMI can be temporary. Use the mortgage payment calculator to test each scenario.

15. When PMI ends automatically

Under the Homeowners Protection Act, conventional loan servicers must cancel PMI when your balance is scheduled to reach 78% of the home's original value, as long as you are current on payments, and must cancel it at the loan's midpoint even if that has not happened. You can ask for cancellation earlier, at 80% of original value, with a good payment history; the lender may require proof that the home has not lost value. If your home has gained value, some lenders will remove PMI based on a new appraisal, often after the loan has been in place for two to five years.

16. FHA mortgage insurance is different

FHA loans charge an upfront mortgage insurance premium, financed into the loan, plus an annual premium paid monthly. For most FHA loans made since 2013 with less than 10% down, the annual premium lasts for the life of the loan; with 10% or more down, it ends after 11 years. The usual way to remove FHA insurance earlier is to refinance into a conventional loan once you have about 20% equity.

17. Estimate PMI on your loan

Your rate depends mainly on credit score and down payment. Borrowers with strong credit and 10% to 15% down tend to see the lower end.

Frequently Asked Questions

Is PMI tax-deductible?

Deductibility of mortgage insurance premiums has changed over the years. Check current IRS rules or ask a tax professional.

Can I get rid of PMI by refinancing?

Yes, if your new loan has at least 20% equity, though closing costs apply.

Is 20% down always required?

No. Many buyers put down 3% to 10% and pay PMI.

Can I remove PMI if my home value rises?

Some lenders allow removal based on a new appraisal; policies vary.

Is PMI ever worth it?

If it lets you buy sooner and the numbers work, many buyers find it reasonable.

How much is PMI on a $300,000 loan?

Roughly $900 to $4,500 a year depending on credit and down payment, or about $75 to $375 a month.

Can I remove PMI early?

Yes. You can request cancellation when your loan balance reaches 80% of the original value, or sooner with a new appraisal in some cases.

Do all mortgages require mortgage insurance?

No. Conventional loans with 20% down and VA loans do not require monthly mortgage insurance.

Does a higher credit score reduce PMI?

Yes. Better credit typically reduces PMI rates significantly. See <a href="/articles/what-is-a-good-credit-score.php">what a good credit score is</a>.

Can PMI change after closing?

On a fixed borrower-paid PMI policy, the rate generally stays the same until cancellation.

Can I avoid PMI with less than 20% down?

Yes, with options such as VA loans, some lender-paid PMI structures or piggyback loans, but each has trade-offs.

How do I cancel PMI?

Contact your servicer in writing when your balance reaches 80% of the original value, confirm you are current and have no other liens and follow their process. You may also request removal based on a new appraisal.

How do I estimate PMI before I apply?

Multiply your loan amount by an estimated annual PMI rate from 0.3% to 1.5%, depending on your credit and down payment, then divide by twelve. Lenders provide exact quotes on the Loan Estimate, and your credit score and down payment percentage have the biggest effects.

Does PMI protect me if I lose my job?

No. PMI protects the lender if you default, not you. If you are worried about missed payments, look at other protections such as an emergency fund, disability insurance and a plan for reducing housing costs.

Is it better to pay PMI or increase my down payment by borrowing from family?

Borrowing for a down payment can affect your qualification and may have gift or loan documentation rules. If family assistance is a gift with proper documentation, it can reduce your loan and PMI. Discuss the options with your lender before making arrangements.

What is lender-paid mortgage insurance?

The lender pays the insurance and charges you a higher interest rate instead; it cannot be cancelled later the way borrower-paid PMI can.

Does VA or USDA have PMI?

VA loans have no monthly mortgage insurance but charge a one-time funding fee for most borrowers; USDA loans charge upfront and annual guarantee fees.

Can I pay PMI up front?

Some lenders offer single-premium PMI paid at closing, which removes the monthly charge but is not refunded if you sell or refinance early.

Does PMI go down over time?

Borrower-paid monthly PMI usually stays the same until it is cancelled, although it is based on the original loan amount.

How long does it take to remove PMI?

With 10% down and scheduled payments, often around 8 to 11 years, sooner with extra payments or a rise in home value.

This article is for general education only and is not tax, legal or investment advice. Figures and rules change; confirm details with the IRS or a qualified professional before making decisions.