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PMI, private mortgage insurance, is what conventional lenders require when you put down less than 20%. It protects the lender if you default, and it costs you 0.5-1.5% of the loan amount per year added to your monthly payment. The important thing to understand: PMI on a conventional loan is not permanent. Once you reach 20% equity, you can request cancellation, and at 22% equity, lenders are required by law to cancel it automatically. If PMI is the only thing standing between you and buying a home, it is a tool, not a life sentence.
KEY TAKEAWAYS
- PMI is required on conventional loans with less than 20% down. It protects the lender, not you, but it lets you buy sooner with less down.
- Cost: typically 0.5-1.5% of the loan amount per year, depending on your credit score, down payment, and lender. On a $320,000 loan, that’s $133-$400/month.
- PMI on a conventional loan cancels at 80% LTV (on request) or terminates automatically at 78% LTV (by law, per original amortization schedule).
- FHA mortgage insurance (MIP) is different, for most FHA loans made since 2013 with less than 10% down, MIP stays for the life of the loan. This is a key reason to consider conventional over FHA once your credit supports it.
- You can avoid PMI with 20% down, a piggyback loan (80/10/10), or lender-paid PMI (LPMI), though LPMI bakes the cost into a higher rate permanently.
Part of our Complete First-Time Buyer’s Guide for 2026.
How Does PMI Work?
When you put down less than 20% on a conventional loan, the lender views the loan as higher risk, statistically, lower-equity borrowers default at higher rates. PMI transfers that risk to an insurance company. You pay the premium; the insurer reimburses the lender if you default and the home does not sell for enough to cover the balance.
PMI is paid monthly as part of your mortgage payment. It does not build equity or benefit you directly, its value is that it makes the lender willing to approve a lower-down-payment loan that they might otherwise decline or charge a much higher rate on.
How Much Does PMI Cost?
| Credit score | 5% down (95% LTV) | 10% down (90% LTV) | 15% down (85% LTV) |
|---|---|---|---|
| 760+ | ~0.46%/yr | ~0.26%/yr | ~0.18%/yr |
| 720-759 | ~0.68%/yr | ~0.44%/yr | ~0.29%/yr |
| 680-719 | ~0.92%/yr | ~0.66%/yr | ~0.44%/yr |
| 640-679 | ~1.30%/yr | ~0.90%/yr | ~0.68%/yr |
On a $320,000 loan with 10% down and a 720 credit score, PMI at ~0.44%/year = roughly $117/month. At 5% down with a 680 score, PMI at ~0.92%/year = ~$245/month on the same loan. Get actual quotes, PMI rates vary by insurer and lender.
Monthly PMI examples on a $320,000 loan at 10% down (loan = $288,000), by credit score tier:
- 760+ score: ~$63/month
- 720-759: ~$106/month
- 680-719: ~$158/month
- 640-679: ~$216/month
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What Is the Difference Between PMI and FHA Mortgage Insurance?
This distinction is one of the most important in first-time buyer decisions. PMI (on conventional loans) and MIP (mortgage insurance premium, on FHA loans) both protect the lender, but they work very differently over time:
| Conventional PMI | FHA MIP | |
|---|---|---|
| Upfront cost | Usually $0 | 1.75% of loan (typically rolled in) |
| Annual cost | 0.5-1.5% depending on score/LTV | ~0.55% (most loans, <$726k) |
| Can it be cancelled? | Yes, at 80% LTV on request; auto-cancels at 78% LTV | Usually no, stays for life of loan if <10% down (loans since 2013) |
| Min credit score | 620 | 580 (3.5% down) / 500 (10% down) |
| Long-run winner | Conventional PMI (once you hit 20% equity) | FHA if score is below 680; conventional wins at 680+ |
The FHA MIP permanence issue is significant. On a $300,000 FHA loan with 3.5% down, MIP at 0.55%/year = about $137/month for the life of the loan, often 30 years = $49,320+ in total MIP paid. A conventional borrower reaching 20% equity after 7 years would pay PMI for 7 years only, then $0. See the full comparison in our FHA vs conventional guide.
How to Avoid PMI on a Conventional Loan
20% down. The straightforward path, no PMI from day one. The trade-off is the cash required and time to save. See our guide to how much down payment you actually need for whether waiting for 20% makes sense in your market.
Piggyback loan (80/10/10). You take out a first mortgage for 80% of the home price, a second mortgage (HELOC or home equity loan) for 10%, and put 10% down yourself. The first lender sees 80% LTV, so no PMI is required. The second mortgage typically carries a higher rate (often 7-9% in 2026), but for some buyers the math works out, especially if PMI would be expensive due to a lower credit score. Run both scenarios before committing.
Lender-paid PMI (LPMI). Some lenders eliminate the separate PMI line by absorbing the insurance cost in exchange for a slightly higher mortgage rate. This can simplify your payment, but the higher rate is permanent, you cannot cancel it once you reach 20% equity the way you can with standard PMI. LPMI works best when you expect to move or refinance in 5-7 years.
VA or USDA loans. Eligible veterans and rural buyers can get 0% down with no PMI at all, the best option if you qualify. See our guide to VA and USDA zero-down loans.
How to Remove PMI on Your Existing Loan
If you already have PMI, here are your options from fastest to slowest:
Request cancellation at 80% LTV. Under the Homeowners Protection Act, you can request PMI cancellation in writing once your loan balance reaches 80% of the original purchase price (not the current appraised value) based on the original amortization schedule. The lender must then cancel it. Requirements: you must be current on payments, with no 60-day late payment in the past 2 years and no 30-day late payment in the past 12 months.
Automatic cancellation at 78% LTV. If you do not request cancellation, the lender is required by law to automatically terminate PMI when your balance reaches 78% of the original purchase price based on the payment schedule. This happens without you doing anything.
New appraisal (if your home value has risen). If your home has appreciated significantly and you believe you are already at 80% LTV based on current value (not original price), you can request an appraisal and petition for early cancellation. The lender is not required to grant this, but many will with a favorable appraisal. Typically requires 2+ years of on-time payments and sometimes a $300-600 appraisal fee.
Refinance. If rates have dropped or your equity has grown enough to justify a new loan at 80% LTV, refinancing eliminates PMI and potentially lowers your rate simultaneously. This has costs (closing costs 2-3%) so run the break-even math first.
Extra principal payments. Paying extra toward principal each month reduces your balance faster, bringing you to the 80% LTV threshold sooner. Even $100-200/month extra can cut 3-5 years off your PMI timeline on a typical loan.
Is PMI Ever Worth Paying?
Yes, often. The break-even question is: does paying PMI now cost less than the alternative (waiting to save more, or buying a more expensive home later due to appreciation)?
On a $350,000 home appreciating at 4%/year, buying with 10% down and paying ~$210/month in PMI for 6 years totals ~$15,120 in PMI. Waiting 2 years to reach 20% down means the same home costs ~$379,000, requiring $75,800 (vs $35,000 at 10% down today) plus 24 months of rent. PMI almost always wins in an appreciating market.
Frequently Asked Questions
What is PMI and who pays for it?
PMI is private mortgage insurance required on conventional loans with less than 20% down. You (the borrower) pay the premium, but the insurance protects the lender, not you. Its benefit is that it enables lenders to approve lower-down-payment loans they would otherwise reject or price much higher.
How much does PMI cost per month?
Typically 0.5-1.5% of the loan amount annually, charged monthly. On a $300,000 loan at 0.8%/year, that’s $200/month. Your actual rate depends on credit score, LTV, loan term, and the PMI insurer. Get quotes from at least 2-3 lenders as PMI rates vary.
When does PMI go away?
On a conventional loan: you can request cancellation once you reach 80% LTV (based on original purchase price, per amortization schedule). Lenders must automatically cancel at 78% LTV. If home values have risen, you may be able to request cancellation earlier based on a new appraisal after 2+ years of payments.
Is FHA mortgage insurance the same as PMI?
No, they are similar in concept but different in structure. FHA MIP includes a 1.75% upfront fee plus ~0.55%/year annually, and for most FHA loans made since 2013 with less than 10% down, it stays for the life of the loan. Conventional PMI has no upfront fee and cancels at 20% equity. This is a major reason conventional loans often win on long-run cost for buyers with 680+ credit scores.
Can I deduct PMI on my taxes?
The PMI tax deduction expired after 2021 and has not been permanently extended as of mid-2026. Check with a tax professional for the current status, tax law changes frequently, and future legislation may reinstate it.
Bottom Line
PMI is the cost of buying with less than 20% down, not a permanent fee and not a reason to delay buying if the rest of your financial situation is ready. Understand what you’re paying, know that conventional PMI cancels at 80% equity, and compare it to FHA MIP (which usually doesn’t cancel) before choosing a loan type. For many first-time buyers, paying PMI to buy now beats waiting years for 20% down while prices rise.
Last updated: July 11, 2026. PMI rate ranges are illustrative based on typical 2026 lender pricing; actual rates depend on your credit score, LTV, lender, and PMI insurer. FHA MIP rates per HUD 2026. Auto-cancellation rules per the Homeowners Protection Act. This article is for educational purposes only and does not constitute financial or mortgage advice.
