Private mortgage insurance, or PMI, is required on most conventional loans when the down payment is less than 20 percent of the purchase price. It does not protect you as the borrower — it protects the lender against loss if you default, which is precisely why lenders are willing to approve loans at a lower down payment in the first place. Understanding what it costs and when it can be removed changes how you think about the size of your down payment.
What PMI Actually Costs
PMI typically runs between 0.3 percent and 1.5 percent of the original loan amount per year, split into monthly payments added to your mortgage bill. On a $350,000 loan, that is roughly $88 to $438 a month, with the exact rate depending on your credit score, loan-to-value ratio, and loan type. A lower credit score pushes the rate toward the higher end of that range even at the same down payment percentage, which means improving credit before applying can meaningfully reduce the monthly PMI cost, not just the interest rate.
Three Ways PMI Gets Charged
Borrower-paid monthly PMI is the most common structure: a set amount added to the mortgage payment until it is removed. Single-premium PMI instead charges the entire cost upfront at closing, either paid in cash or rolled into the loan balance, which avoids a monthly line item but increases the amount financed. Lender-paid PMI folds the cost into a slightly higher interest rate for the life of the loan instead of a separate charge, which can look attractive month to month but, unlike borrower-paid PMI, cannot later be cancelled since it is baked into the rate rather than billed separately.
When It Automatically Falls Off
Under federal law, lenders must automatically cancel borrower-paid PMI once the loan balance is scheduled to reach 78 percent of the home's original value, based on the original amortization schedule, regardless of whether you request it. That is a guaranteed floor, not the earliest possible removal date.
Requesting Early Removal
You can request cancellation earlier, once the loan balance reaches 80 percent of the original value, and the lender is required to grant it if your payment history is current and you meet the lender's conditions. Extra principal payments accelerate reaching that threshold faster than the standard schedule would, similar to how prepaying principal reduces total interest described in the mortgage break-even math around refinancing. If your home's value has risen substantially since purchase — through market appreciation or renovation — you may also be able to request removal based on current value rather than waiting for the original schedule to catch up, though this route usually requires a new appraisal paid out of pocket, typically $400 to $600, and lender approval of the reappraised value.
FHA Loans Work Differently
FHA loans charge mortgage insurance premiums rather than PMI, and the removal rules are stricter. Loans with less than 10 percent down at closing generally keep mortgage insurance for the entire loan term, with no automatic cancellation regardless of how much equity builds up. The only way to remove it in that case is refinancing into a conventional loan once enough equity exists, which reintroduces the break-even calculation of whether refinancing costs are worth it for the given monthly savings.
Avoiding PMI From the Start
A 20 percent down payment avoids PMI entirely, but so does an 80/10/10 structure, where a second loan covers part of the gap between a smaller down payment and the 20 percent threshold. That approach trades a monthly PMI charge for interest on a second loan, and which is cheaper depends on current rates for both products; running the actual numbers rather than assuming either option is automatically better is the only reliable way to decide. The Consumer Financial Protection Bureau outlines your specific cancellation rights under federal law in more detail.
PMI is not a penalty so much as the price of a smaller down payment, and it is temporary by design on conventional loans. Tracking your loan-to-value ratio and requesting removal the moment you cross 80 percent, rather than waiting for the automatic cutoff at 78 percent, can save a meaningful number of months of payments.