PMI: What It Costs and How to Remove It
By the SteadyCalc team · Updated July 16, 2026
Private mortgage insurance adds a real monthly cost to buying with less than 20% down, and servicers rarely volunteer the rules for getting rid of it. Here's what PMI actually covers, what it costs on a typical loan, and the specific paths to canceling it.
What PMI actually protects
Private mortgage insurance protects the lender, even though you pay for it. If you default and the foreclosure sale doesn't cover what you owe, the insurer reimburses the lender for part of the loss. You get no coverage from it at all — if you lose your job, PMI will not make your payment.
Conventional lenders typically require PMI when your down payment is under 20%, because a borrower with less equity is statistically more likely to walk away and leaves the lender a thinner cushion if prices fall. Seen from the buyer's side, PMI is the fee that makes small-down-payment loans possible in the first place. Without it, many lenders simply wouldn't write a conventional loan at 5% or 10% down.
What it costs
PMI is priced as a percentage of your loan amount per year, and the rate depends on your credit score, how much you put down, your debt-to-income ratio, and the loan type. Bigger risk, bigger premium: a 620 credit score with 5% down pays a much higher rate than a 780 score with 15% down.
For a worked example, take a $320,000 home with 5% down ($16,000), which means financing $304,000. Say your PMI quote comes in at 0.5% annually — an assumption, since your actual rate depends on the factors above. That works out to $1,520 a year, or about $127 a month. It stacks on top of everything else: at an assumed 6.5% rate on a 30-year term, the principal-and-interest payment alone is about $1,921, so PMI pushes it to roughly $2,048 before taxes and insurance. You can see how your own loan splits between principal and interest in our mortgage calculator.
Your quoted rate matters more than any other single input, so it's worth seeing the range. Hold the same $304,000 loan and move only the PMI rate: at 0.3%, the kind of pricing strong credit and a larger down payment can earn, the premium is about $912 a year (roughly $76 a month). At 1.0%, plausible with a thinner credit file and a minimal down payment, it swells to about $3,040 a year, or roughly $253 a month. The premium is itemized on the Loan Estimate each lender gives you while you shop, so compare it line by line — two lenders can quote the same interest rate and meaningfully different PMI.
Unlike the rest of your payment, PMI buys you nothing that lasts. Principal builds equity and interest is the price of borrowing, but the PMI premium is pure overhead — which is exactly why it's worth knowing the removal rules cold.
The three ways PMI ends
Federal law, the Homeowners Protection Act, sets minimum rules for canceling PMI on most conventional home loans. The CFPB's Ask CFPB resources describe three separate paths:
| Removal path | When it triggers | Who initiates | Typical requirements |
|---|---|---|---|
| Borrower-requested cancellation | Balance reaches 80% of the home's original value | You, with a written request | Good payment history, no other liens; lender may require an appraisal showing the value hasn't dropped |
| Automatic termination | Balance is scheduled to reach 78% of original value | The servicer, automatically | Current on payments |
| Final termination | The loan's halfway point (year 15 of a 30-year term) | The servicer, automatically | Current on payments, even if the balance hasn't hit 78% |
Two details trip people up. First, “original value” means the value when you bought or refinanced, so under these baseline rules, market appreciation doesn't move the trigger — only the loan balance does. Second, the 80% path requires you to act. Nobody calls to tell you that you qualify, and the difference between asking at 80% and waiting for automatic termination at 78% is months of premiums you didn't need to pay.
How long that takes on regular payments alone
On our example loan, 80% of the original $320,000 value means paying the balance down to $256,000. Making only the scheduled payment, that takes 124 months — a little over ten years — because early payments are mostly interest. (Our guide to how amortization works shows why the balance falls so slowly at first.) By then you'd have paid roughly $15,700 in PMI premiums. Waiting for automatic termination at 78% ($249,600) stretches it to month 135.
Ten years of a “temporary” fee is worth taking seriously. In the first five years alone, the example borrower hands over $7,600 in premiums that build no equity and buy no protection for the household paying them.
Getting to 80% faster
You have three realistic accelerants, and they stack.
- Extra principal payments. Adding $150 a month to the example loan reaches the $256,000 mark at month 89 instead of 124 — 35 months sooner, which avoids about $4,400 of PMI. The extra payments also cut lifetime interest, so the money does double duty.
- Appreciation plus a new appraisal. The federal baseline uses original value, but many servicers will consider a cancellation request based on the home's current value, typically with their own equity and loan-age requirements. If prices in your area have climbed, ask your servicer in writing what they require — the cost of an appraisal can be small next to years of premiums.
- Refinancing. If your equity now clears 20% of the home's current value, refinancing into a new loan without PMI removes the premium in one move. It only makes sense when the new rate and closing costs pencil out, which is exactly what our refinance calculator is for.
FHA loans play by different rules
Everything above applies to PMI on conventional loans. FHA loans charge their own version, called a mortgage insurance premium (MIP), with an upfront charge plus an annual premium — and MIP generally can't be canceled the way PMI can. For many FHA borrowers, the practical exit is refinancing into a conventional loan once they have enough equity to qualify without PMI. If you have an FHA loan, run that refinance math rather than waiting for a cancellation right that may never arrive.
Is avoiding PMI always worth it?
Plenty of advice treats PMI as something to avoid at any cost. The math is less absolute. On the example home, jumping from 5% down to 20% down means saving an extra $48,000 before you buy. If that takes four or five more years, you spend those years paying rent, and you take the risk that prices rise faster than your savings — while the PMI you were avoiding costs $1,520 a year and is removable.
Watch out for one workaround that sounds better than it is: lender-paid PMI, where the lender covers the premium in exchange for a higher interest rate. The monthly bill can look smaller, but that higher rate never cancels — you carry it until you refinance or sell, long after borrower-paid PMI would have terminated under the rules above.
Buying earlier with PMI means you start building equity and locking in your housing cost sooner, at the price of a heavier monthly payment. Waiting means a cheaper loan later if nothing else moves, but nothing else is guaranteed to hold still. There is no universal answer; it depends on your rent, your savings rate, and your local market. What tilts the decision more than PMI itself is usually the loan you attach it to — our comparison of 15-year vs. 30-year mortgages shows term choice swinging lifetime cost by far more than a few years of premiums.
Frequently asked questions
Does PMI protect me if I can't make my payments?+
No. PMI reimburses the lender for losses if you default; it offers you no protection and does not pause or cover your payments during hardship. Products that pay your mortgage if you die or become disabled are separate policies, usually called mortgage protection insurance, and work completely differently.
Will PMI come off automatically, or do I have to ask?+
Both paths exist. Your servicer must terminate PMI automatically when the balance is scheduled to hit 78% of the original value, if you are current. But you can request cancellation earlier, at 80%, and the servicer will not prompt you. Track your balance and send a written request the month you qualify.
Can rising home values get rid of my PMI faster?+
Often, yes. The federal 80% rule uses your home's original value, but many servicers will cancel based on current value if a new appraisal supports it, subject to their own equity and loan-age requirements. Contact your servicer in writing and ask exactly what documentation they need before paying for an appraisal.
What is the difference between PMI and FHA mortgage insurance?+
PMI applies to conventional loans with less than 20% down and can be canceled once you reach the equity thresholds. FHA loans charge a mortgage insurance premium instead, with an upfront fee plus annual premiums, and MIP generally cannot be removed the same way. Many FHA borrowers refinance into a conventional loan to drop it.
Do I need a perfect payment history to cancel PMI?+
You need a good one. Lenders can deny borrower-requested cancellation if you have recent late payments, and automatic termination at 78% requires you to be current on the loan. If you are behind, the servicer terminates PMI once you catch up. Keeping clean payment history in the year or two before you qualify protects the earliest possible removal date.
Keep going
Why early loan payments are mostly interest, how the balance actually falls each month, and what extra principal payments really do.
Compare monthly payments, total interest, and equity build-up on the same loan at both terms, and see when each one makes sense.
Estimate your monthly mortgage payment including principal, interest, and a full amortization schedule.
Compare your current mortgage payment to a new rate and term, and find the break-even point on your closing costs.