In this article
- What Is Private Mortgage Insurance?
- How Much Does PMI Cost?
- PMI vs MIP: What's the Difference?
- How to Remove PMI: The 80% and 78% Rules
- How to Avoid PMI Without 20% Down
- Common PMI Mistakes to Avoid
- Frequently Asked Questions
- The Bottom Line
- Related Reading
TL;DR — What is private mortgage insurance? It is the extra monthly premium your lender charges when you buy with less than 20% down — it protects the lender, not you, and it typically costs $30 to $70 a month per $100,000 borrowed (Freddie Mac). The median first-time buyer now puts just 10% down (NAR, 2025), so most buyers pay it — and most can cancel it years before the loan ends.
What is private mortgage insurance, in one sentence? Private mortgage insurance is a monthly fee that buys your lender protection — not you — when your down payment is under 20%, and federal law lets it end once your loan balance falls to 80% of the home's price.
You found the house. The offer got accepted. Then the loan estimate arrives and there's a line you never budgeted for: PMI, $131 a month, stacked on top of a payment you already stretched to reach. That is the moment most buyers meet private mortgage insurance — not as a concept, but as a number that wasn't in the plan.
That gap — between the payment you planned and the payment that actually lands — is exactly where budgets break. VaultBudgets is built to close it: every line of your housing cost gets a name before it surprises you, so the premium is a decision you made, not a charge you discovered.
What Is Private Mortgage Insurance?
What is private mortgage insurance? It is an insurance policy your lender takes out to protect itself when you borrow with less than 20% down — you pay the premium every month, but the lender is the only beneficiary. It ends by law once your loan falls to 80% of the home's original price.
PMI is the toll for entering the market without a fat down payment. Lenders know that a borrower with 5% down and no equity is statistically more likely to walk away from a house than a borrower with 20% skin in the game. Insurance removes that risk from the lender's books and passes the cost to you — which is fair, as long as you know two things: what it's for, and when it has to stop.
Sort the myths from the facts early, because most of the confusion around PMI lives here:
| Claim about PMI | True or false |
|---|---|
| PMI protects the lender if you default | True — that is its entire job |
| PMI insures you against missed payments | False — you pay the premium, you get no coverage |
| PMI lasts for the life of the loan | False — federal law ends it, one way or another |
| Every loan under 20% down carries PMI | False — FHA loans use MIP and VA loans use a funding fee instead |
That last row matters more than it looks. "PMI" gets used as a catch-all for any low-down-payment fee, but the rules — and your rights to cancel — are completely different on each loan type, as the comparison below shows.
How Much Does PMI Cost?
How much does PMI cost? Expect roughly $30 to $70 per month for every $100,000 you borrow — $90 to $210 on a $300,000 loan (Freddie Mac). Your credit score and down payment set the final number: strong credit and more money down pay at the bottom of the range.
Nobody quotes PMI as a flat price because insurers price it on risk. The same loan can carry two very different premiums depending on who's borrowing:
| Factor | Effect on your monthly PMI |
|---|---|
| Credit score | The biggest lever — 760+ lands near the floor, under 640 near the ceiling |
| Down payment | 5% down costs noticeably more than 15% down on the same loan |
| Loan type | Adjustable-rate loans price higher than fixed-rate ones |
| Property type | Condos, multi-unit homes, and investment properties all price up |
Here's the real math on a typical 2026 purchase — a $350,000 house with 10% down:
| Item | Amount |
|---|---|
| Home price | $350,000 |
| Down payment (10%) | $35,000 |
| Loan amount | $315,000 |
| PMI rate (0.5% of loan per year) | $1,575 a year |
| Monthly PMI premium | $131 |
$131 a month is $1,575 a year building zero equity — it is pure risk pricing on the loan. And it stacks onto the rest of the payment: principal, interest, taxes, and homeowners insurance were already stretching the budget. That's why PMI belongs inside your affordability math before you shop, not after the loan estimate lands — the same payment ceiling that caps the whole mortgage, which we work through in how much house can I afford.
PMI vs MIP: What's the Difference?
PMI's lookalike is MIP — mortgage insurance premium — which lives on FHA loans. They sound interchangeable and they are not: one cancels, one usually doesn't.
| PMI (conventional loans) | MIP (FHA loans) | |
|---|---|---|
| Found on | Conventional mortgages | FHA mortgages |
| Protects | Your lender | The FHA's insurance fund |
| Upfront cost | None | 1.75% of the loan amount |
| Annual cost | About 0.5%–1.5% of the loan | Most new borrowers pay 0.55% |
| Can you cancel it? | Yes — request at 80%, automatic at 78% | No, if you put under 10% down — it lasts the life of the loan |
| How it ends early | Written request to your servicer | Only by refinancing into a non-FHA loan |
This is the quiet reason loan type can matter more than rate. A 30-year FHA loan with 5% down carries MIP until the loan is refinanced away — decades of premium no letter can cancel. A conventional loan with 10% down carries PMI for a stretch of years and then it's gone. Run both totals before signing; the "lower rate" loan is sometimes the more expensive one over the life of the mortgage.
How to Remove PMI: The 80% and 78% Rules
Federal law — the Homeowners Protection Act — draws three exact lines where PMI must end, and the Consumer Financial Protection Bureau spells out your right to cancel at the first one:
| Milestone | Balance on a $350,000 home | What happens |
|---|---|---|
| 80% LTV — you ask | $280,000 | You request cancellation in writing; the servicer must end PMI if you're current on payments |
| 78% LTV — automatic | $273,000 | PMI must be terminated automatically on the scheduled date if you're current |
| Loan midpoint | Year 15 of a 30-year loan | Final termination — PMI ends even if the balance hasn't reached 78% |
The first line is the one worth acting on, because asking beats waiting — sometimes by years. Here's the play:
- Find your balance and your original price. The 80% line is 80% of what the home cost when you bought it — $280,000 on the example above — not 80% of what it's worth today.
- Request cancellation in writing the month your balance crosses that line. On the scheduled date, no appraisal or fee is required — just current payments and no other loans stacked on the house.
- Pay ahead to arrive early. Extra principal pulls the date closer. Want PMI gone sooner based on your home rising in value? Some lenders allow it, but expect to pay for a new appraisal — your federal rights run on the original price, not today's market.
- Check the next statement. Confirm the premium is actually gone. Servicers are legally required to comply, but nobody audits your bill for you.
How long does the ride last? On the $315,000 loan above, assuming a 6.5% rate, the balance crosses $280,000 a little before year eight of normal payments; with 5% down it takes past year ten. Every extra principal payment pulls that date closer.
The habit that gets you there early is the same one that keeps any budget alive. In VaultBudgets, envelope budgeting lets you run an "extra principal" envelope beside the housing envelope, and the reports show the loan balance walking down toward the cancel line month by month — so the request you mail in year six instead of year eight is the result of a habit, not a windfall.
How to Avoid PMI Without 20% Down
Sometimes the answer isn't paying PMI — it's structuring around it. Four routes, each with a tradeoff:
- Lender-paid PMI. The lender covers the premium and charges you a higher interest rate instead. It can be cheaper if you'll keep the loan a long time — and worse if you refinance early. Compare the total cost both ways.
- A piggyback loan (80/10/10). A second loan covers 10% of the price so your first mortgage stays at 80%. No PMI, but you now carry two payments — run both against your debt-to-income ratio before committing.
- A VA loan. Eligible service members and veterans can buy with no monthly mortgage insurance at all — just a one-time funding fee. For those who qualify, it's the cleanest low-down-payment path in the market.
- Split the difference: save to 20%. A sinking fund named "down payment" turns 20% from a fantasy into a date — the month-by-month method is in our down payment savings plan.
And one honest caveat: paying PMI is sometimes the right call anyway. If rent in your city is climbing faster than prices, three years of $131 premiums may cost less than the price increase you waited out — the full math is in rent vs buy. PMI is a cost, not a sin. What matters is that you price it, and that it ends.
Common PMI Mistakes to Avoid
- Believing PMI protects you. It never does. The policy pays your lender if you default — if you want protection for your house and belongings, that's homeowners insurance, which is a separate premium you'll also be paying.
- Waiting for automatic removal. The automatic termination fires at 78%, but your right to ask starts at 80% — on a $350,000 home that's a $7,000 gap of balance, often 8–12 months of extra premiums. Ask at 80%.
- Leaving PMI out of the affordability math. A payment that fits without PMI may not fit with it. Price the premium before you set your budget ceiling, not after.
- Confusing PMI with homeowners insurance. Lenders require both. One protects them from you defaulting; the other protects the structure you live in. They appear side by side on the loan estimate and they are not the same money.
- Assuming FHA premiums cancel like PMI. FHA MIP on most low-down-payment loans lasts for the life of the loan. If you're FHA now, the exit is refinancing into a conventional loan once you have enough equity — worth pricing every year or two.
Frequently Asked Questions
How much is PMI on a $300,000 loan?
Between $90 and $210 a month, using Freddie Mac's $30–$70 per $100,000 borrowed range. At the commonly quoted 0.5% annual rate, a $300,000 loan runs $1,500 a year, or $125 a month. Strong credit and a bigger down payment push you toward the lower end.
Can I remove PMI without refinancing?
Yes. Once your balance reaches 80% of the home's original price, send your servicer a written cancellation request — no refinance, no appraisal, no fee needed if you're current on payments. Refinancing is only the required route for FHA loans, whose MIP cannot be canceled.
Does PMI go away automatically?
At 78% of the home's original value, yes — the servicer must terminate it automatically on the scheduled date if your payments are current, and at the loan's halfway point it ends regardless. But automatic removal starts years after the date you're allowed to request it yourself, so don't wait for it.
How long do you pay PMI on a conventional loan?
Until the loan hits one of the cancel lines — commonly somewhere around year seven or eight with 10% down on a 30-year loan, and past year ten with 5% down. Extra principal payments pull the date closer. FHA MIP is the exception: it runs for the life of the loan unless you refinance out.
What's the difference between PMI and homeowners insurance?
PMI protects the lender if you stop paying; homeowners insurance protects your home and belongings from fire, theft, and disaster. You pay both when you have a mortgage, they appear together on the loan estimate, and canceling one has no effect on the other.
The Bottom Line
What is private mortgage insurance? The toll on a small down payment — $30 to $70 a month per $100,000 borrowed, cancellable at 80% if you ask, gone by law at 78%. The premium never ends on its own a day before the law says so, so know your balance and send the request the month you cross the line.
Give every mortgage dollar a name in VaultBudgets — and watch PMI's last month arrive.
Related Reading
- How Much House Can I Afford? The 28/36 Rule Explained — the payment ceiling PMI has to fit inside.
- How to Save for a House Down Payment: A Real Plan — the road to 20% down, month by month.
- What Is Debt-to-Income Ratio? How It Works (2026 Guide) — the other number a PMI loan has to satisfy.
- Is It Better to Rent or Buy? The Real Math for 2026 — when paying PMI now still beats waiting it out.
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