If you buy with less than a 20% down payment on a conventional loan, you will probably meet private mortgage insurance. It is a real line in the monthly payment, it protects someone other than you, and it usually has an end date. This guide is educational only and covers how PMI is priced, how FHA insurance compares, and the normal paths to removing it.
What PMI is and who it protects
PMI is an insurance policy that reimburses the lender if the loan defaults and the sale of the home does not cover the balance. You pay the premium; the coverage benefits the lender. What it buys you indirectly is access — it lets companies advertise loans with smaller down payments than they otherwise would.
When PMI is typically required
On conventional loans, private mortgage insurance is generally required when the loan-to-value ratio is above 80% — in other words, below a 20% down payment.
A few structures avoid it: a larger down payment, a piggyback second lien, or a lender-paid arrangement. Government-backed loans do not use PMI at all; they run their own programs, covered in this plain-English guide to FHA and VA home loans.
How PMI is priced and paid
Premiums are quoted as an annual percentage of the loan amount and are driven by:
- Loan-to-value — the smaller the down payment, the higher the rate
- Credit score — pricing tiers move noticeably across score bands
- Loan type, term, and occupancy, plus the coverage level the investor requires
Payment structures vary by company:
- Borrower-paid monthly — the common default, added to the payment
- Single premium — paid upfront at closing or financed into the loan
- Lender-paid (LPMI) — no separate line, but a permanently higher rate
LPMI looks cleaner on paper, but because the cost is baked into the rate it does not fall away when you reach 20% equity. See also how mortgage rates are set and what moves them.
FHA mortgage insurance compared
FHA loans carry a mortgage insurance premium rather than PMI, and it works differently: an upfront premium usually financed into the loan, plus an annual premium collected monthly. On most current FHA loans with a small down payment, that annual premium lasts the life of the loan rather than cancelling at 20% equity.
That difference is often the real decision point between FHA and conventional with PMI — not the headline rate.
The usual paths to removing PMI
For conventional loans on a primary residence, federal law sets the baseline:
- Automatic termination at 78% of the original value on the amortization schedule, provided payments are current
- Borrower-requested cancellation at 80% of the original value, in writing, typically with a good payment history and sometimes an appraisal
- Appreciation-based removal, where a new appraisal shows enough equity, subject to servicer rules
- Refinancing out of the loan once equity supports it, weighed against closing costs
Deductibility of mortgage insurance depends on your circumstances; consult a tax professional. New buyers may also want the first-time home buyer basics.
Compare advertised offers
PMI pricing differs by company and by insurer. Browse finance companies and compare advertised offers, then ask each advertiser to quote the same scenario with and without a lender-paid option.
Frequently asked questions
How do I get rid of PMI on my mortgage?
On a conventional loan you can usually request cancellation once the balance reaches 80% of the original value, and it typically terminates automatically at 78%. Rising home values may qualify you sooner with a new appraisal. Servicer requirements vary, so ask yours.
How much does PMI cost per month?
It is quoted as an annual percentage of the loan amount and spread across twelve payments, varying with your loan-to-value, credit score, and coverage level. Because pricing is tiered, two borrowers with the same down payment can pay quite different amounts.
Does FHA mortgage insurance ever go away?
On most FHA loans with a minimum down payment, the annual premium stays for the life of the loan. Larger down payments and older loans follow different rules. Many borrowers refinance into a conventional loan once equity is enough to end it.
Disclaimer: GoFunding.Shop is an advertising marketplace, not a lender, bank, broker, credit-repair company, or financial advisor. We do not approve applications, set rates, or guarantee funding. Always confirm the full terms — APR, fees, and repayment schedule — directly with the advertising company before you apply.