PMI Explained: What It Costs and How to Cancel It
Private mortgage insurance (PMI) is required when you put less than 20% down on a conventional mortgage. It protects the lender — not you — and typically costs 0.5% to 2% of your loan amount per year. The good news: once you reach 20% equity, you can request cancellation and reclaim that money for your own budget.
What Is PMI?
Private mortgage insurance is a policy that your lender requires you to purchase when your down payment is less than 20% of the home's purchase price. If you default on the loan, PMI reimburses the lender for a portion of their losses. It is not homeowner's insurance — it provides zero protection for you as the borrower.
PMI applies to conventional loans. Government-backed loans handle mortgage insurance differently: FHA loans charge a mortgage insurance premium (MIP) that works similarly, while VA and USDA loans have their own fee structures.
How Much Does PMI Cost?
PMI premiums typically range from 0.5% to 2% of your loan balance annually, paid monthly as part of your mortgage payment.
On a $350,000 loan with a 1% PMI rate, you would pay roughly $292 per month in PMI — or $3,500 per year — until you reach sufficient equity.
Several factors affect your exact rate:
- Down payment percentage (lower down = higher rate)
- Credit score (lower score = higher rate)
- Loan type (fixed vs. adjustable)
- Loan term
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When Is PMI Required?
PMI is required on conventional loans whenever your loan-to-value (LTV) ratio exceeds 80% at origination — meaning your down payment is less than 20%. For a $400,000 home, that threshold is an $80,000 down payment.
If you put 10% down ($40,000), your starting LTV is 90% and PMI kicks in. If you put 5% down, LTV is 95% and PMI is higher still.
How to Cancel PMI
The Homeowners Protection Act gives you two paths to PMI cancellation:
- Request cancellation when your loan balance drops to 80% of the original purchase price (based on your original amortization schedule or extra payments you have made).
- Automatic termination when your balance reaches 78% of the original purchase price, assuming you are current on payments.
You can also build equity faster by making extra principal payments, or by having the home reappraised if values in your area have risen significantly — some lenders will waive PMI based on current appraised value rather than the original purchase price.
See How PMI Affects Your Buying Power
Factor in PMI costs when calculating what you can afford
Key Takeaways
- PMI protects the lender, not you, and is required when your down payment is under 20%.
- Annual PMI cost typically runs 0.5%–2% of the loan balance, paid monthly.
- On a $350,000 loan at 1% PMI, you pay roughly $292/month extra.
- You can request PMI cancellation once you reach 20% equity; lenders must auto-cancel at 22%.
Can I cancel PMI once I have enough equity?▾
Yes. Under the Homeowners Protection Act, you can request PMI cancellation when your loan balance reaches 80% of the original purchase price. Your lender must automatically cancel it when the balance reaches 78%. You may also request cancellation earlier if your home's value has increased, though most lenders require a new appraisal.
Is PMI tax deductible?▾
PMI deductibility has varied by year due to Congressional extensions. As of the most recent guidance, you should check IRS Publication 936 or consult a tax professional for the current tax year, since this deduction has lapsed and been reinstated multiple times.