By Meraj Uddin Provat · Last reviewed May 23, 2026 · Editorial Standards
PMI (private mortgage insurance) is an extra monthly charge conventional lenders require when your down payment is under 20%. It protects the lender if you default — it does nothing for you — and it disappears once you have enough equity. This is the plain-English version, with the numbers.
The one-sentence definition
PMI is insurance you pay for that reimburses your lender (not you) if you stop paying your mortgage, required on conventional loans whenever your loan is more than 80% of the home’s value.
How much PMI costs
Typically 0.3% to 1.5% of the loan amount per year, split into monthly payments. The rate depends mostly on your credit score and down payment:
| Down payment | Credit 760+ | Credit 620–679 |
|---|---|---|
| 15% | ~0.3–0.5%/yr | ~0.9–1.1%/yr |
| 5% | ~0.5–0.8%/yr | ~1.2–1.5%/yr |
On a $360,000 loan at 0.5%, that’s $150/month — $1,800 a year for coverage that benefits the bank.
Why lenders require it
A borrower with little equity is statistically more likely to walk away if prices fall. PMI offsets the lender’s risk, which is why it’s tied to the loan-to-value ratio, not your income or how reliable you are. Cross over 20% equity and the risk (per the lender’s model) drops enough that PMI ends.
When PMI goes away
Under the federal Homeowners Protection Act, on a conventional loan:
- Request cancellation at 80% LTV — you must ask, in writing, with a good payment history.
- Automatic termination at 78% LTV — the lender must drop it, no action needed.
- Appreciation route — if your home’s value rose, a new appraisal showing ~20–25% equity can cancel it years early.
Most people overpay PMI for months or years because nobody told them they can request cancellation at 80%. See exactly when yours ends with the PMI removal calculator.
PMI vs FHA MIP — not the same thing
- PMI = conventional loans. Removable. This article.
- MIP = FHA loans. Often lasts the life of the loan; the only escape is refinancing out of FHA. Different rules entirely. Compare loan types with the FHA vs Conventional calculator.
How to avoid or minimize PMI
- Put 20% down — no PMI at all. See the impact in the mortgage payment calculator.
- Lender-paid PMI (LPMI) — lender covers it for a slightly higher rate; can be cheaper if you’ll hold the loan long, worse if you’ll refinance soon.
- Piggyback 80/10/10 — a second loan covers 10% so the first stays at 80%; situational, compare total cost.
- Pay down to 80% fast — extra principal reaches the cancellation threshold sooner.
Frequently asked questions
Does PMI protect me? No. It pays the lender if you default. You get nothing from it except access to a loan with less than 20% down.
Is PMI tax-deductible? The deduction has lapsed and been reinstated repeatedly. Do not assume it applies in 2026 — check current IRS rules or a tax professional.
Can I cancel PMI early? Yes — request at 80% LTV, or sooner via a new appraisal if your home appreciated. It is not automatic until 78%.
Does a bigger down payment always remove PMI? 20% or more down on a conventional loan = no PMI from day one. Below that, PMI applies until you reach the equity thresholds.
How do I know my current PMI cost? Check your monthly mortgage statement or loan estimate. It’s a separate line from principal, interest, taxes and insurance.
Bottom line
PMI is a temporary cost of buying with less than 20% down — not a penalty, not permanent, and often cancellable years before the automatic 78% date if you act. Run your numbers in the PMI removal calculator to see your exact end date and what acting early saves.
Educational explainer, not financial advice.