PMI is an insurance premium you pay monthly when you put down less than 20 percent on a home

Private Mortgage Insurance (PMI) is a monthly fee added to your mortgage payment. The lender requires it when your down payment is smaller than 20 percent of the home's purchase price. PMI protects the lender, not you — if you stop paying the mortgage, the insurance covers part of the lender's loss.

The cost varies based on three things: how much you borrowed, how much you put down, and your credit score. A borrower with a 10 percent down payment and a 650 credit score will pay more per month than someone with a 15 percent down payment and a 750 score. The premium is calculated as a percentage of your loan amount and divided into 12 monthly payments.

PMI is separate from homeowners insurance, which covers damage to the house itself. PMI only covers the lender's risk that you will default. Once you build enough equity in the home — usually 20 percent — you can request removal.

Key Takeaways

  • PMI is required by lenders when your down payment is less than 20 percent of the purchase price.
  • The monthly PMI cost depends on your loan amount, down payment percentage, and credit score.
  • PMI protects the lender's investment, not your home or belongings.
  • You can request PMI removal once you have paid down the loan to 80 percent of the original home value.
  • Some loans, like FHA mortgages, use mortgage insurance instead of PMI but work on similar principles.

How much PMI costs per month

PMI premiums typically range from 0.3 to 1.5 percent of your loan amount annually, though the exact rate depends on your lender and risk profile. On a $300,000 loan, that translates to roughly $75 to $375 per month. A borrower with a lower credit score or smaller down payment lands at the higher end; someone with strong credit and a 15 percent down payment lands lower.

Your lender will provide a Loan Estimate before you close on the home. This document shows the estimated monthly PMI payment in the "Loan Costs" section. The actual amount may shift slightly at closing based on the final appraisal and your exact loan terms, but the estimate gives you a realistic number to budget.

PMI is not tax-deductible for most borrowers, though there are narrow exceptions if you itemize deductions and meet income thresholds. Check with a tax professional about your specific situation.

When PMI gets added to your payment

PMI is rolled into your monthly mortgage payment, not billed separately. Your payment covers principal, interest, property taxes, homeowners insurance, and PMI all in one amount. You do not write a separate check or set up a second payment arrangement.

Some lenders offer lump-sum PMI, where you pay the entire premium upfront at closing instead of spreading it across monthly payments. This reduces the total interest you pay over time but requires cash at closing. Others offer single premium PMI, where the cost is financed into the loan itself — you pay interest on the PMI, which increases your total loan cost.

The most common arrangement is monthly PMI, where the fee is divided into 12 equal payments added to your mortgage bill. This spreads the cost over time and does not require extra cash at closing.

How to remove PMI from your mortgage

PMI removal is automatic in some cases and requires a request in others. Federal law requires lenders to cancel PMI automatically once your loan balance reaches 78 percent of the original home purchase price, assuming you are current on payments. This happens based on your amortization schedule — you do not have to ask.

You can request early removal once you reach 80 percent equity (meaning you have paid down 20 percent of the original loan). To do this, contact your lender and ask for a PMI removal request form. Most lenders require a current appraisal showing the home is worth at least what you owe, proof that you are current on payments, and sometimes proof that you have not taken out a second mortgage or home equity line of credit.

The appraisal costs $300 to $500 out of pocket and is not always required — some lenders use automated valuation models instead. Ask your lender what documentation they need before you pay for an appraisal. If the home has appreciated significantly, the appraisal may show you have already crossed the 80 percent threshold and may have access to for removal.

PMI versus mortgage insurance on government-backed loans

FHA loans use Mortgage Insurance Premium (MIP) instead of PMI. The mechanics are similar — you pay a monthly fee because your down payment is small — but MIP works differently. FHA requires an upfront premium at closing (1.75 percent of the loan amount) plus an annual premium split into monthly payments. Unlike PMI, FHA mortgage insurance cannot be removed based on equity alone; it stays for the life of the loan if you put down less than 10 percent.

VA loans and USDA loans do not require PMI or mortgage insurance. VA loans may charge a one-time funding fee at closing, and USDA loans charge an upfront may provide fee plus an annual fee, but these are not insurance products and work on different terms.

Conventional loans — the most common type — use PMI when the down payment is under 20 percent. If you are comparing loan types, factor in the total cost of insurance over the life of the loan, not just the monthly payment.

What happens if you miss a PMI payment

PMI is part of your mortgage payment. If you miss the payment, you are late on your entire mortgage, not just the insurance portion. Your lender will report the late payment to credit bureaus after 30 days, and the consequences are the same as missing any mortgage payment: damage to your credit score, late fees, and eventual foreclosure risk if the delinquency continues.

You cannot selectively pay your principal and interest while skipping PMI. The payment is bundled. If you are struggling to make the full payment, contact your lender immediately to discuss options like forbearance or loan modification.

Strategies to avoid or reduce PMI

The most direct way to avoid PMI is to save a 20 percent down payment before buying. If that is not realistic, consider a larger down payment than the minimum — even 15 percent instead of 5 percent cuts your PMI cost significantly and gets you to the 80 percent equity threshold faster.

Some borrowers use a piggyback loan (also called an 80/10/10 loan) to avoid PMI. You take out a first mortgage for 80 percent of the purchase price and a second mortgage or home equity line of credit for 10 percent, putting down 10 percent yourself. This avoids PMI but saddles you with two loan payments and two sets of closing costs. The math only works if PMI costs more than the extra interest on the second loan.

Improving your credit score before applying for the mortgage lowers your PMI rate. A 50-point increase in your credit score can reduce your monthly PMI by $20 to $50. If you are on the edge of a credit tier, delaying your purchase by a few months to build credit may pay off.

Frequently Asked Questions

Can I remove PMI early if my home value goes up?

Yes. If your home appreciates and an appraisal shows you have reached 80 percent equity, you can request removal even if your loan balance has not dropped that far through payments alone. You pay for the appraisal yourself, typically $300 to $500.

What is the difference between PMI and homeowners insurance?

PMI protects the lender if you default on the mortgage. Homeowners insurance protects you and the lender against damage to the house from fire, theft, weather, and other covered events. Both are required, but they cover different risks.

Do I have to pay PMI if I put down 20 percent?

No. A 20 percent down payment eliminates the PMI requirement on conventional loans. This is one reason many buyers aim for that threshold before purchasing.

Will PMI ever go away on its own?

Yes, automatically once your loan balance reaches 78 percent of the original purchase price, assuming you stay current on payments. This happens based on your amortization schedule without any action on your part.

Is PMI tax-deductible?

For most borrowers, no. PMI is not deductible on your federal tax return. There are narrow exceptions for high-income earners who itemize deductions, but these phase out at higher income levels. Consult a tax professional about your situation.