PMI is an insurance payment your lender requires when you put down less than 20 percent

PMI stands for private mortgage insurance. It is a monthly payment added to your mortgage bill when you borrow more than 80 percent of your home's purchase price. The insurance protects the lender if you stop paying the loan — it is not protection for you. Your lender requires it because lending more than 80 percent of the home's value is considered higher risk.

PMI is separate from your principal, interest, property taxes, and homeowners insurance. It appears as its own line item on your mortgage statement. The amount varies based on the loan size, your down payment percentage, your credit score, and the type of loan you have. A typical PMI payment ranges from 0.3 to 1.5 percent of your original loan amount per year, paid in monthly installments.

You do not choose to pay PMI — your lender mandates it as a condition of the loan. Once your home equity reaches 20 percent, you can request removal, though the process and timeline depend on your loan type and lender.

Key Takeaways

  • PMI is required when you put down less than 20 percent on a home purchase, and it protects the lender, not you.
  • PMI appears as a separate monthly charge on your mortgage bill and typically costs between 0.3 and 1.5 percent of your loan amount annually.
  • You can request PMI removal once your home equity reaches 20 percent, either through home appreciation or extra principal payments.
  • Some loan types, like FHA loans, use mortgage insurance premiums (MIP) instead of PMI and have different removal rules.

How PMI is calculated and what affects the cost

PMI cost depends on four main factors: your loan amount, your down payment percentage, your credit score, and your loan type. A larger loan means higher PMI payments in dollar terms. A smaller down payment (say, 5 percent instead of 15 percent) means a higher PMI rate because the lender's risk is greater.

Your credit score also matters. Borrowers with scores below 620 typically pay higher PMI rates than those with scores above 740. Some lenders charge different rates based on whether the loan is conventional, FHA, VA, or USDA. Your lender will provide a PMI estimate before you close, so you know the exact monthly cost.

PMI is calculated on your original loan amount, not your current balance. If you borrowed $300,000 with a 10 percent down payment, PMI is based on that $300,000 figure even as you pay down the principal over time.

When PMI payments stop

For conventional loans, PMI stops when your loan-to-value ratio reaches 80 percent. This happens through a combination of paying down principal and home appreciation. You can request removal once you hit that threshold by contacting your lender with proof of your current home value (usually an appraisal). Some lenders remove PMI automatically once you reach the midpoint of your loan term, though you should not rely on this — contact your lender to confirm.

FHA loans work differently. FHA mortgage insurance premiums (MIP) cannot be removed if you put down less than 10 percent, even after you reach 20 percent equity. If you put down 10 percent or more, MIP can be removed after 11 years. USDA and VA loans have their own rules and may not require mortgage insurance at all.

Refinancing is another way to eliminate PMI. If your home has appreciated enough that you now have 20 percent equity, refinancing into a new loan without PMI can save you money — though you will pay closing costs on the new loan, so run the math first.

PMI versus other mortgage insurance types

PMI applies only to conventional loans. FHA loans use mortgage insurance premiums (MIP), which work similarly but have different rules for removal and are often more expensive upfront. VA loans backed by the Department of Veterans Affairs do not require mortgage insurance. USDA loans for rural properties may require a may provide fee instead.

The key difference is removal. PMI can be removed once you reach 20 percent equity. FHA MIP is permanent on loans with less than 10 percent down. This makes FHA loans more expensive over time if you plan to stay in the home for many years, but they allow lower down payments and are easier to get with lower credit scores.

How PMI affects your monthly payment and total loan cost

PMI increases your monthly mortgage payment by hundreds of dollars depending on the loan size and your down payment. On a $300,000 loan with 10 percent down, PMI might add $150 to $300 per month. Over 30 years, that is $54,000 to $108,000 in PMI payments alone.

This is why putting down 20 percent if you can is often cheaper than borrowing with PMI. However, PMI also lets you buy a home sooner with less cash saved up. If you can afford the higher monthly payment and plan to stay in the home long enough to build equity, PMI may be worth the cost.

PMI is not tax-deductible for most borrowers, though there are narrow exceptions for high-income earners in certain years. Check with a tax professional about your specific situation.

What happens if you miss a PMI payment

PMI is part of your mortgage payment, so missing it means missing your entire mortgage payment. Your lender will report the missed payment to credit bureaus after 30 days, and you risk foreclosure if payments remain unpaid. There is no separate PMI bill — it rolls into your mortgage statement.

If you are struggling with your mortgage payment, contact your lender immediately. Many offer forbearance programs or loan modifications that can lower your payment temporarily. Ignoring the problem will not make it go away and will damage your credit score.

Frequently Asked Questions

Can I avoid PMI by putting down 15 percent instead of 20 percent?

No. PMI is required whenever your down payment is less than 20 percent. Putting down 15 percent still triggers PMI. The only way to avoid it is to reach 20 percent down or refinance later once your home equity reaches that level.

Does PMI go down as I pay off my mortgage?

No. PMI stays the same throughout your loan because it is calculated on your original loan amount, not your current balance. It only stops when you reach 20 percent equity and request removal, or when your loan term reaches the midpoint (depending on your lender's policy).

What is the difference between PMI and homeowners insurance?

Homeowners insurance protects your home and belongings from damage and covers liability if someone is injured on your property. PMI protects the lender if you default on the loan. You need both, and they are separate payments on your mortgage statement.

Can I pay off my mortgage early to remove PMI faster?

Yes. Making extra principal payments builds equity faster, which gets you to 20 percent equity sooner. Once you reach that threshold, you can request PMI removal. However, check your loan for prepayment penalties before making large extra payments.

What if my home value drops — does PMI go away?

No. PMI is based on your original loan amount and down payment, not current home value. Even if your home loses value, PMI stays until you reach 20 percent equity through principal payments or until you refinance into a new loan.