PMI is insurance that protects your lender, not you, and it gets added to your monthly payment when you put down less than 20 percent

Private Mortgage Insurance (PMI) is a monthly fee your lender requires you to pay if your down payment is smaller than 20 percent of the home's purchase price. The insurance protects the lender if you stop paying the mortgage — it does not protect you. PMI gets rolled into your regular mortgage payment, so you pay it every month alongside principal, interest, and property taxes until you reach 20 percent equity in the home or meet other removal conditions.

The cost varies based on three things: how much you borrowed, how large your down payment was, and your credit score. A borrower with a 10 percent down payment and a 750 credit score will pay less PMI than someone with a 5 percent down payment and a 650 score. The difference can be $100 to $300 per month on the same loan amount.

Key Takeaways

  • PMI is required when your down payment is less than 20 percent, and the cost is added to your monthly mortgage payment.
  • Your PMI amount depends on the loan size, your down payment percentage, and your credit score — lower down payments and lower credit scores mean higher PMI costs.
  • PMI can be removed once you reach 20 percent equity through payments, a home value increase, or a refinance, but the timeline varies by loan type.
  • FHA loans use mortgage insurance premiums (MIP) instead of PMI, and MIP typically cannot be removed even after reaching 20 percent equity.

How PMI is calculated and what it costs per month

PMI is expressed as an annual percentage of the loan amount, usually between 0.5 and 2 percent depending on your risk profile. If you borrow $300,000 with a 10 percent down payment and your PMI rate is 1 percent, you pay $3,000 per year, or $250 per month. That $250 sits in your mortgage bill alongside your principal and interest payment.

The lender orders a PMI quote from one of the major insurers — United Guaranty, Radian, MGIC, or Arch — and the insurer sets the rate based on your credit score, debt-to-income ratio, and how much equity you have at closing. A credit score of 740 or higher typically gets the lowest rates; scores below 680 can add 0.5 percent or more to the annual cost. A 5 percent down payment costs more than a 10 percent down payment on the same loan, because the lender's risk is higher.

Some lenders offer lender-paid PMI, where the lender pays the insurance premium upfront and recouples the cost by charging you a higher interest rate. This can make sense if you plan to sell or refinance within five to seven years, because you avoid the monthly PMI payment. It does not make sense if you plan to stay in the home for 15 years, because the higher rate compounds over time and costs more than paying PMI monthly.

When PMI gets removed from your payment

On a conventional loan, PMI is removed automatically once you reach 20 percent equity in the home. This happens through a combination of your monthly payments (which build equity) and home value appreciation. If you bought a $400,000 home with a $40,000 down payment (10 percent), you need to build $40,000 more in equity. Depending on your interest rate and loan term, this typically takes 5 to 12 years.

You can also request PMI removal once you hit 20 percent equity — you do not have to wait for the automatic removal. Some lenders remove it automatically; others require you to ask. Call your loan servicer and ask whether they have reached the 20 percent threshold based on your current loan balance and the home's original purchase price or a recent appraisal.

Refinancing can remove PMI faster if your home has gained value. If your $400,000 home is now worth $450,000 and you still owe $360,000, you have 20 percent equity without waiting years. You can refinance into a new loan without PMI. Refinancing costs money (closing costs typically run 2 to 5 percent of the loan amount), so calculate whether the PMI savings over the remaining loan term justify the upfront cost.

The difference between PMI and FHA mortgage insurance

FHA loans use mortgage insurance premiums (MIP) instead of PMI. MIP works similarly — it protects the lender and gets added to your monthly payment — but the rules for removal are stricter. On an FHA loan with a down payment of 10 percent or less, you pay MIP for the life of the loan, even after you reach 20 percent equity. On an FHA loan with a down payment between 10 and 20 percent, MIP can be removed after 11 years.

FHA also charges an upfront mortgage insurance premium (UFMIP) at closing, usually 1.75 percent of the loan amount. This gets rolled into your loan balance, so you pay interest on it over 30 years. A $300,000 FHA loan includes a $5,250 UFMIP charge, which means you borrow $305,250 instead. Combined with the annual MIP payment, FHA loans cost more in insurance than conventional loans with PMI, but FHA requires only a 3.5 percent down payment compared to the 5 to 10 percent typical for conventional loans.

How PMI affects your total mortgage cost

PMI adds thousands of dollars to the total cost of your loan. On a $300,000 conventional loan with a 10 percent down payment and a 1 percent PMI rate, you pay $250 per month in PMI. Over 10 years (the typical time to reach 20 percent equity), that is $30,000 in PMI payments. If you refinance or sell before reaching 20 percent equity, you pay PMI for however long you hold the loan.

The total cost of PMI depends on how long you carry it. A borrower who reaches 20 percent equity in 8 years pays less PMI than one who reaches it in 12 years, even on the same loan. Home value appreciation can shorten the timeline — if your home gains value, you reach 20 percent equity faster. A home that appreciates 3 percent per year reaches 20 percent equity sooner than one that stays flat.

Putting down more than 20 percent at purchase eliminates PMI entirely and saves you tens of thousands over the life of the loan. Putting down 15 percent instead of 10 percent reduces your PMI cost by roughly 40 percent, because the insurer's risk is lower. The trade-off is that you have less cash on hand after closing, so the decision depends on your financial situation and whether you have other high-interest debt to pay down first.

Strategies to avoid or reduce PMI

The most direct way to avoid PMI is to save a 20 percent down payment before buying. This requires more upfront savings but eliminates years of PMI payments. If you cannot save 20 percent, putting down 15 percent instead of 10 percent reduces your PMI cost significantly and shortens the time to removal.

A piggyback loan (also called an 80-10-10 loan) is a second mortgage that covers part of the down payment, allowing you to avoid PMI without a full 20 percent down. You take out an 80 percent first mortgage and a 10 percent second mortgage, and put down 10 percent yourself. The second mortgage typically has a higher interest rate than the first, so calculate the total cost of both loans before committing. This strategy made sense when second mortgage rates were close to first mortgage rates; today the rate gap is wider, so it is less common.

Waiting to buy until you have saved more is also an option. If you are 2 to 3 years away from a 20 percent down payment, the PMI you would pay in that time might exceed the benefit of buying sooner. This depends on local rent versus buy costs and whether home prices are rising in your market.

What happens if you miss a PMI payment

You cannot miss a PMI payment separately — it is part of your mortgage payment. If you miss your mortgage payment, you miss PMI along with principal and interest. Your lender will charge a late fee, report the missed payment to credit bureaus after 30 days, and can begin foreclosure proceedings after 120 days of non-payment.

If you are struggling to pay your mortgage, contact your servicer immediately. Many lenders offer forbearance (a temporary pause on payments), loan modification (a change to the loan terms), or a repayment plan that spreads missed payments over time. These options do not remove PMI, but they can prevent foreclosure while you stabilize your finances.

Frequently Asked Questions

Can I remove PMI before reaching 20 percent equity?

On a conventional loan, no — you must reach 20 percent equity through payments or home appreciation. On an FHA loan, you cannot remove MIP at all if your down payment was 10 percent or less. Some lenders allow PMI removal at 15 percent equity if you have made on-time payments and your credit score has improved, but this is rare and depends on the lender's policy.

Does PMI go down over time?

No, your PMI payment stays the same each month until it is removed. The amount does not decrease as you build equity. Once you reach 20 percent equity, the entire PMI payment stops — it does not taper off gradually.

What if my home value drops — does PMI stay the same?

Yes, PMI stays the same regardless of home value changes. If your home loses value and you fall below 20 percent equity, you still pay PMI until you reach 20 percent again through payments or the home appreciates. This is why PMI removal is based on your loan balance, not current home value.

Is PMI tax deductible?

PMI was tax deductible for some borrowers in past years, but that deduction expired at the end of 2021 and has not been renewed. Check with a tax professional about your specific situation, but for most borrowers, PMI is not deductible.

Should I refinance to remove PMI?

Refinancing makes sense if you have reached 20 percent equity and current interest rates are lower than your existing rate. If rates are higher or similar, refinancing costs (typically 2 to 5 percent of the loan amount) may outweigh the PMI savings. Use a refinance calculator to compare the cost of refinancing against the cost of keeping your current loan and waiting for automatic PMI removal.