If you put down less than 20% on a conventional mortgage, you'll likely pay Private Mortgage Insurance (PMI). Understanding PMI helps you minimize this cost and know when you can remove it.
What Is PMI?
PMI protects the lender (not you) if you default on your loan. It's typically required when your down payment is less than 20% of the home's value.
How Much Does PMI Cost?
- • Typically 0.5% to 1.5% of the original loan amount per year
- • On a $300,000 loan: $1,500 to $4,500 per year ($125-$375/month)
- • Cost varies based on credit score, down payment, and loan type
PMI Cost Examples
| Down Payment | Credit 760+ | Credit 700-759 | Credit 680-699 |
|---|---|---|---|
| 5% | 0.54% | 0.82% | 1.36% |
| 10% | 0.30% | 0.54% | 0.96% |
| 15% | 0.18% | 0.36% | 0.60% |
Annual PMI rates for $300,000 loan (illustrative)
Ways to Pay PMI
Monthly Premium
Most common. Added to your monthly mortgage payment. No upfront cost.
Single Premium
Pay entire PMI cost upfront at closing. Can be financed into loan. Lower monthly payment.
Split Premium
Partial upfront payment + lower monthly payments. Balances upfront cost with monthly savings.
Lender-Paid PMI
Lender pays PMI in exchange for higher interest rate. No separate PMI payment, but higher rate for life of loan.
How to Remove PMI
Automatic Termination
Lender must automatically cancel PMI when your loan balance reaches 78% of the original home value (based on original amortization schedule).
Request Cancellation at 80%
You can request PMI cancellation once you reach 80% loan-to-value. Must have good payment history and no other liens.
Appreciation or Improvements
If your home value has increased or you've made improvements, you may be able to remove PMI sooner with a new appraisal. Usually requires 75-80% LTV.
PMI vs. MIP
FHA loans have Mortgage Insurance Premium (MIP) instead of PMI. Key differences:
| Feature | PMI (Conventional) | MIP (FHA) |
|---|---|---|
| Can be removed? | Yes (at 78-80% LTV) | Only with refinance* |
| Upfront fee | Optional | Required (1.75%) |
| Monthly cost | 0.3-1.5% | 0.55-0.75% |
| Duration | Until 20% equity | 11 years or life of loan |
*MIP can be removed by refinancing to a conventional loan once you have 20% equity
Strategies to Minimize PMI
- 1
Put more down — Even 5% more reduces PMI significantly
- 2
Improve your credit score — Better credit = lower PMI rates
- 3
Make extra payments — Reach 20% equity faster
- 4
Watch appreciation — Request cancellation if value rises
- 5
Consider piggyback loan — 80-10-10 can avoid PMI (but has trade-offs)
Calculate PMI in your monthly payment
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