If you have ever wondered what is PMI, you are not alone. Private mortgage insurance, usually shortened to PMI, appears on many mortgage statements, adds to the monthly payment, and is often misunderstood. It does not protect you as the borrower. It protects the lender if you stop paying. Understanding that one fact makes the rest of PMI much easier to grasp, including when it applies, what it costs, and how you can remove it.
This guide explains PMI in plain English, for a conventional mortgage in the United States, and it is not a substitute for reading your own loan documents, because exact terms vary by lender and loan type.
What Is PMI?
PMI is insurance that a borrower usually pays for when a conventional mortgage has a relatively small down payment. If the borrower defaults, the insurer pays the lender part of the loss. The borrower pays the premium, but the lender is the beneficiary.
PMI exists because a lender takes more risk when a buyer puts down less money and borrows a larger share of the home’s value. It is usually charged as a monthly premium added to your mortgage payment, although some loans use a single upfront premium or a combination. Check your loan estimate and closing documents for the exact method.
When PMI Applies
For a conventional loan, PMI usually applies when your down payment is less than 20% of the home’s purchase price or appraised value. In other words, if you borrow more than 80% of the home’s value, your loan-to-value ratio, often shortened to LTV, is above 80%, and PMI is usually required.
Loan-to-value is a simple calculation. Divide your loan balance by the home’s value, then multiply by 100. For example, a $240,000 loan on a $300,000 home is an 80% LTV. A $270,000 loan on the same home is a 90% LTV, and PMI would usually apply.
Government-backed loans work differently. FHA loans, for example, use a mortgage insurance premium with its own rules, not always removable the same way. Do not assume these removal steps apply to an FHA, VA, or USDA loan.
What PMI Costs
PMI cost varies with your credit score, down payment, loan amount, and loan type, so there is no single figure that applies to everyone. As a general rule of thumb, annual PMI often falls roughly in the range of 0.3% to 1.5% of the original loan amount per year, paid monthly, although individual premiums can fall outside that range.
To make that concrete, consider an illustrative example only. On a $250,000 loan, 0.5% a year would be $1,250 a year, or about $104 a month. At 1% a year, it would be $2,500 a year, or about $208 a month. Those are illustrations, not quotes, and your actual premium will depend on your lender, your credit profile, and your down payment.
Because PMI can add a meaningful amount to a monthly payment, compare buying with a smaller down payment and PMI against waiting to save more. Our guide on how much down payment you need explains that trade-off, and our guide on mortgage rates near 7.5% puts PMI in the wider buying context.
How to Remove PMI at 80% LTV
For many conventional loans, you can ask your servicer to cancel PMI once your balance falls to 80% of the original home value, based on the purchase price or appraised value used at closing. This is borrower-requested cancellation.
You normally need to meet several conditions: your loan must be current, with no recent late payments, you must have a good payment history, and you must not have other liens on the property in some cases. Your servicer may also require a new appraisal or a broker price opinion to confirm the home’s current value, and you may have to pay for that valuation.
Do not wait for your servicer to notice. Write to request PMI cancellation, give your loan number, and ask what form, valuation, or proof it requires. Keep a copy of your request and any reply.
Automatic Termination at 78% LTV
Even if you never ask, conventional PMI is generally scheduled to terminate automatically once your loan balance is scheduled to reach 78% of the original value, provided your loan is current at that time. This is based on the original amortisation schedule, not on extra payments or a rise in home value, so it can arrive later than borrower-requested cancellation.
That distinction matters. Extra payments or a rise in home value can bring you to 80% of current value much earlier than the scheduled 78% date, but requesting cancellation then requires proof of current value, usually with an appraisal.
Check your annual PMI disclosure from your servicer. It states the scheduled termination date and how to request earlier cancellation.
PMI on a Rising Market, and When an Appraisal Helps
A rising home value can help you remove PMI sooner, because LTV uses value as well as balance. If your balance has fallen a little and your home’s value has risen a lot, your current LTV may already be below 80%, even if the original schedule says otherwise.
An appraisal can prove that, but it costs money, and the result is not guaranteed. Before you pay for one, ask your servicer what value it will accept, whether it requires its own appraisal or broker price opinion, and what LTV threshold it applies for borrower-requested cancellation based on current value. Some servicers apply a stricter threshold, such as 75%, when the request is based on improvements or a recent rise in value.
Questions to Ask Your Servicer, in Writing
Before you act, ask your servicer these questions in writing: What is my current PMI premium, and what LTV is it based on? What is the scheduled automatic termination date? What do I need to do to request cancellation at 80%? Will you accept a current appraisal, and who must perform it? Are there any other conditions, such as a minimum loan age or a seasoning period?
Keep those answers with your loan documents. If you are still deciding whether to buy, our first-time home buyer checklist and our renting vs buying guide cover the wider decision.
The Consumer Financial Protection Bureau publishes plain-English guides to owning a home and to mortgage insurance, which are a useful independent check alongside your servicer’s explanation.
Frequently Asked Questions
Does PMI protect me if I cannot pay my mortgage?
No. PMI protects the lender, not the borrower. If you cannot pay, PMI does not pay your mortgage for you, and you can still face foreclosure.
Can I remove PMI from an FHA loan the same way?
Not usually. FHA mortgage insurance follows different rules, and for many newer FHA loans it lasts for the life of the loan unless you refinance into a conventional loan. Check your loan type before assuming conventional PMI rules apply.
Do extra principal payments help remove PMI sooner?
Yes, for borrower-requested cancellation, because they lower your balance and therefore your LTV. They do not change the scheduled automatic termination date on their own, so you still need to request cancellation.
Should I pay for an appraisal just to remove PMI?
Only after checking with your servicer. Confirm what value it will accept, what threshold it applies, and whether the likely PMI saving justifies the appraisal cost.
Disclaimer: This article is for general educational purposes only and does not provide personalised financial, investment, tax, or legal advice. PMI rules, thresholds, and servicer requirements vary by loan type, lender, and jurisdiction, and can change. Check your loan estimate, closing documents, and annual PMI disclosure, and confirm the process with your servicer in writing before making a decision.
