What Is PMI and When Does It Go Away?

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What PMI Is — and Who It Protects

Private mortgage insurance has a name that suggests it protects you, but it doesn't. PMI protects the lender. When you put less than 20% down on a home, the lender takes on more risk — if you default and the home needs to be sold, a small equity cushion may not cover the full loan balance. PMI is the lender's hedge against that risk. You pay the premium; the lender collects the protection.

PMI is required on conventional loans (Fannie Mae or Freddie Mac backed) when the loan-to-value ratio (LTV) exceeds 80% at origination. LTV is calculated as loan amount ÷ purchase price. A $280,000 loan on a $350,000 home is 80% LTV — exactly at the PMI threshold. A $315,000 loan on the same home is 90% LTV — PMI required.

How Much PMI Costs

PMI rates typically range from 0.5% to 1.5% of the loan amount per year, billed monthly. Your rate depends on three main factors: your down payment percentage, your credit score, and whether the mortgage is a fixed or adjustable rate. The better your credit and the closer you are to 20% down, the lower your PMI rate.

Notice the credit score impact: the same 5% down payment at a 680 credit score costs more than double the PMI of a 760+ score. Improving your credit before buying — even by 40–50 points — can save hundreds per month in PMI alone, on top of a lower base interest rate.

The Homeowners Protection Act: Your Legal Right to Cancel

The Homeowners Protection Act (HPA), passed in 1998, gave borrowers legal rights to cancel PMI. There are three cancellation triggers:

1. Borrower-requested cancellation at 80% LTV: You can send a written request to your lender when your loan balance reaches 80% of the original purchase price, based on your original amortization schedule. Requirements: the loan must be current, you must have a good payment history (no 30-day late payments in the past 12 months), and your property value must not have declined.
2. Automatic cancellation at 78% LTV: If you don't request cancellation, lenders are legally required to automatically terminate PMI when your scheduled payments reduce your balance to 78% of the original purchase price — even if you don't ask. This happens based on the original amortization schedule, not accelerated paydown.
3. Final termination at midpoint: PMI must terminate at the midpoint of the loan's amortization schedule — even if your LTV hasn't reached 78% — as long as payments are current. On a 30-year loan, that's month 180.

The Appreciation Loophole

If your home has appreciated significantly since you bought it, you may already have 20%+ equity based on current market value — even if your loan balance is still above 80% of the original purchase price. Many conventional lenders allow PMI cancellation when a new professional appraisal shows the current LTV is at or below 80%. Requirements typically include: the loan is at least 2 years old, the borrower has a good payment history, and the appraisal is ordered by the lender (not a third party).

This is a key advantage of conventional loans over FHA. FHA MIP cannot be removed based on appreciation — you'd have to refinance. Conventional PMI can be.

How to Get Rid of PMI Faster

Beyond waiting for the scheduled cancellation date, three strategies accelerate PMI removal:

• Extra principal payments: Every extra dollar you pay toward principal reduces your loan balance faster and moves the 80% LTV date forward. Even $100–200/month extra can eliminate 1–2 years of PMI.
• Home appreciation + new appraisal: If your market has appreciated, order an appraisal through your lender. If it shows you're at 80% LTV on current value, you can request cancellation immediately — regardless of how long you've been paying.
• Refinance to a new conventional loan: If rates have dropped or your home's value has increased enough that you'd have 20%+ equity at the new appraised value, refinancing eliminates PMI entirely on the new loan — and potentially lowers your rate simultaneously.

PMI vs. FHA MIP: Why the Difference Matters

Many first-time buyers consider FHA loans because they allow 3.5% down payments and are often easier to qualify for. But FHA comes with mortgage insurance premium (MIP) that works very differently from PMI:

• FHA upfront MIP: 1.75% of the loan amount added to your balance at closing. On a $315,000 loan, that's $5,513 added to your loan balance immediately.
• FHA annual MIP: Currently 0.55%–0.85% of the loan per year (depending on down payment and term), billed monthly.
• FHA MIP duration: If you put less than 10% down, MIP lasts the entire life of the loan — the only way to remove it is to refinance into a conventional loan.

For buyers with 680+ credit scores, a conventional loan with PMI almost always costs less over the long run than an FHA loan with MIP — especially since conventional PMI is cancellable. FHA makes more sense primarily for borrowers with credit scores below 620, who can't qualify for competitive conventional rates.

Alternatives to Paying PMI

If PMI is a significant concern, there are three conventional alternatives:

1. Lender-paid PMI (LPMI): The lender covers the PMI premium in exchange for a slightly higher interest rate. You don't have a separate PMI line item, but you pay more interest for the life of the loan — even after you would have otherwise cancelled PMI. Usually only beneficial if you plan to sell or refinance within 5–7 years.
2. Piggyback loan (80/10/10): A first mortgage for 80% of the purchase price, a second mortgage (HELOC or home equity loan) for 10%, and a 10% down payment. The first mortgage has no PMI because its LTV is 80%. The second mortgage carries a higher interest rate but may be cheaper than PMI. Works best when second mortgage rates are competitive.
3. VA loan: Veterans with sufficient VA entitlement can purchase with 0% down and no PMI. VA loans use a one-time funding fee instead, which is typically less than years of PMI payments. Only available to eligible veterans, active-duty service members, and surviving spouses.

Use the PMI Calculator to see exactly how many months you'll pay PMI and the total cost before cancellation. To see how PMI interacts with your full mortgage cost picture, read Should You Buy Mortgage Points? for the rate-reduction side of the equation.