What Is PMI?
Your complete guide to private mortgage insurance
Last Updated: February 2026
PMI (private mortgage insurance) is a type of mortgage insurance that protect the lender if you stop making payments on your home loan. When you make a down payment of less than 20% of the home's purchase price on a conventional loan, lenders require you to pay for PMI as an added layer of protection against potential losses.
In 2026, approximately 35% of first-time homebuyers use PMI to purchase their homes with down payments between 3% and 19%. While paying private mortgage insurance adds to your monthly mortgage payment, PMI can help millions of buyers achieve homeownership years earlier than they otherwise could if they had to save for a full 20% down payment. Here's everything you need to know about PMI before buying a home.
Understanding how PMI works is essential because PMI is a type of insurance that significantly affects your monthly payment and the total cost of buying a home. The amount you pay for PMI depends on several factors we'll explore below.
Key Point
Remember: PMI does not protect you—mortgage insurance protects the lender instead. However, it benefits you by allowing homeownership with a smaller down payment. Once you reach 20% equity based on the value of your home, you can request to cancel PMI and stop paying this additional cost.
How Private Mortgage Insurance Works
When you take out a conventional mortgage with less than 20% down, the lender faces higher risk. If you can't pay your mortgage and the home sells at foreclosure for less than the loan balance, the lender absorbs the loss. Private mortgage insurance mitigates this risk—the insurance policy reimburses the lender for a portion of their losses. This coverage is provided by private insurance companies, not the government.
Who Pays PMI?
You, the borrower, pay for private mortgage insurance even though it provides financial protection for the lender. PMI is paid as a monthly premium that's rolled into your monthly mortgage payment alongside principal, interest, property taxes, and homeowners insurance (commonly abbreviated as PITI). When you pay your loan each month, the PMI portion goes to the insurance company.
When Is PMI Required?
PMI is only required on conventional loans when your down payment is less than 20 percent. Specifically, lenders require PMI when:
- Your down payment is less than 20% of the purchase price
- You're refinancing with less than 20% equity in your home
- You have a conforming loan backed by Fannie Mae or Freddie Mac
On the other hand, PMI is not required if you make a 20% or larger down payment—lenders won't require you to pay PMI with a traditional 20% down. Your loan officer can explain the specific requirements for your situation and help you understand when you can cancel your PMI.
PMI Applies Only to Conventional Loans
Government-backed loans have different insurance requirements. FHA loans require mortgage insurance premium (MIP), which works differently than PMI. VA loans don't require any mortgage insurance. USDA loans have guarantee fees instead of PMI.
How Much Does PMI Cost?
PMI typically costs between 0.3% and 1.5% of your original loan amount annually. The exact rate depends on several factors:
Factors That Affect Your PMI Rate
- Down payment size: Larger down payments mean lower PMI rates. A 15% down payment results in lower PMI than a 5% down payment
- Credit score: Higher credit scores qualify for better PMI rates. Borrowers with 760+ scores pay significantly less than those with 620 scores
- Loan-to-value ratio (LTV): Lower LTV ratios reduce PMI costs
- Loan type: Fixed-rate mortgages typically have lower PMI rates than adjustable-rate mortgages
- Property type: Primary residences have lower PMI rates than investment properties or second homes
PMI Cost Examples
Here's what PMI might cost on a $400,000 home purchase with different down payment amounts:
| Down Payment | Loan Amount | Annual PMI (0.5%) | Monthly PMI |
|---|---|---|---|
| 3% ($12,000) | $388,000 | $1,940 | $162 |
| 5% ($20,000) | $380,000 | $1,900 | $158 |
| 10% ($40,000) | $360,000 | $1,800 | $150 |
| 15% ($60,000) | $340,000 | $1,700 | $142 |
Over the life of PMI payments (typically 5-10 years until reaching 20% equity), these costs can add up to $10,000-$20,000 or more.
Types of Private Mortgage Insurance
Not all PMI is structured the same way. Understanding your options helps you choose the most cost-effective approach for your situation.
Borrower-Paid Monthly PMI (BPMI)
The most common type of PMI, borrower-paid monthly insurance is added to your regular mortgage payment. This option offers flexibility because:
- No large upfront cost required
- PMI automatically terminates when you reach 78% LTV
- You can request cancellation at 80% LTV
- Payments stop entirely once PMI is removed
Single-Premium PMI (Upfront PMI)
With single-premium PMI, you pay the entire insurance premium upfront at closing. This approach may make sense if:
- You have extra cash available for closing costs
- The seller agrees to pay closing costs (you can use those funds for PMI)
- You plan to stay in the home for many years
- You want lower monthly payments
Important: Single-premium PMI is typically non-refundable. If you sell or refinance early, you won't recover the upfront payment.
Lender-Paid PMI (LPMI)
Some lenders offer to pay your PMI in exchange for a slightly higher interest rate on your mortgage. This option:
- Eliminates the separate PMI payment
- May result in lower total monthly payments initially
- Cannot be canceled since it's built into your interest rate
- May cost more over the life of the loan
Watch Out for LPMI
While lender-paid PMI sounds attractive, the higher interest rate lasts for the entire loan term. With borrower-paid PMI, you stop paying once you reach 20% equity. Run the numbers carefully before choosing LPMI.
Split-Premium PMI
A hybrid approach where you pay part of the PMI upfront and the rest monthly. This option balances lower monthly payments with a smaller upfront cost than single-premium PMI.
How to Avoid Paying PMI
While PMI enables homeownership with smaller down payments, it's still an added cost. Here are legitimate strategies to avoid paying PMI:
1. Make a 20% Down Payment
The most straightforward way to avoid PMI is putting 20% down on your home purchase. On a $400,000 home, that means an $80,000 down payment. While this requires significant savings, it eliminates PMI entirely and reduces your loan amount.
2. Use a Piggyback Loan (80/10/10)
A piggyback loan combines two mortgages to avoid PMI:
- First mortgage: 80% of the home's value
- Second mortgage (HELOC): 10% of the home's value
- Down payment: 10% cash
Since the first mortgage is exactly 80% LTV, no PMI is required. However, the second mortgage typically has a higher interest rate, so compare total costs carefully.
3. Choose a VA or USDA Loan
If you're eligible, government-backed loans offer no-PMI options:
- VA Loans: No down payment required and no mortgage insurance for eligible veterans, active-duty military, and surviving spouses
- USDA Loans: No down payment for eligible rural properties, with guarantee fees instead of PMI
Related Guide
Learn more about loan options in our First-Time Home Buyer Programs Guide.
4. Negotiate Lender-Paid PMI
As mentioned above, some lenders will pay your PMI in exchange for a higher interest rate. This eliminates the separate PMI payment, though it increases your overall borrowing costs.
5. Request a Loan-Level Price Adjustment Waiver
In competitive lending markets, some lenders offer PMI waivers or reduced rates for borrowers with excellent credit and strong financial profiles. It never hurts to ask.
How to Remove PMI From Your Mortgage
The good news about PMI is that it's temporary. Unlike FHA mortgage insurance, which often lasts for the life of the loan, conventional PMI can be removed once you've built sufficient equity.
Automatic PMI Termination
Under the Homeowners Protection Act of 1998 (enforced by the Consumer Financial Protection Bureau), lenders must automatically cancel PMI when your mortgage balance drops to 78% of the original purchase price (or appraised value at the time of purchase, whichever is less). This happens automatically based on your amortization schedule, assuming you're current on payments.
Requesting PMI Cancellation
You don't have to wait for automatic termination. You can request PMI cancellation once your loan balance reaches 80% of the original value. Requirements typically include:
- Written request to your loan servicer
- Current on mortgage payments with good payment history
- No other liens on the property
- Proof that property value hasn't declined (may require appraisal)
Using Home Appreciation to Cancel PMI Early
If your home has appreciated significantly, you may qualify for early PMI removal based on current value rather than original purchase price. Most lenders allow this if:
- You've owned the home for at least 2 years
- Your loan balance is 75% or less of current appraised value
- You pay for a new appraisal (typically $400-$600)
In hot real estate markets, home appreciation can help you reach the equity threshold much faster than regular mortgage payments alone.
Refinancing to Eliminate PMI
If you have 20% equity based on current market value, refinancing can eliminate PMI while potentially securing a better interest rate. Consider refinancing if:
- Current mortgage rates are lower than your existing rate
- You have at least 20% equity based on current home value
- You plan to stay in the home long enough to recoup closing costs
PMI vs. FHA Mortgage Insurance (MIP)
PMI and FHA mortgage insurance premium (MIP) are often confused, but they work differently:
| Feature | PMI (Conventional) | MIP (FHA) |
|---|---|---|
| Loan Type | Conventional loans only | FHA loans only |
| Upfront Premium | Optional (single-premium PMI) | Required (1.75% of loan amount) |
| Annual Premium | 0.3% - 1.5% of loan amount | 0.45% - 1.05% of loan amount |
| Cancellation | Yes, at 78-80% LTV | Only with 10%+ down (after 11 years) |
| Lifetime Requirement | No | Yes, if down payment <10% |
| Credit Score Impact | Significant (rate varies by score) | Minimal (flat rate) |
Key Takeaway: FHA loans may have lower down payment requirements and more flexible credit standards, but the inability to cancel MIP (for most borrowers) can make conventional loans with PMI cheaper over time.
Is PMI Tax Deductible?
PMI tax deductibility has changed over the years. As of 2026:
- PMI was tax deductible for many years but expired and was renewed multiple times
- Check current IRS guidelines or consult a tax professional for the latest status
- If deductible, it applies to mortgage insurance on a primary residence
- Income limits may apply to the deduction
Even if PMI is tax deductible, the savings typically don't fully offset the cost. Consider PMI as a necessary expense to achieve homeownership rather than a tax planning strategy. To learn more about PMI and whether you should make a 20 percent down payment to avoid it, consult with a mortgage professional.
Is PMI Worth It?
Whether PMI is "worth it" depends on your individual circumstances:
PMI May Be Worth It If:
- Home prices are rising faster than you can save for a 20% down payment
- Rent costs are comparable to or higher than a mortgage payment with PMI
- You want to start building equity and stop paying rent
- Tax benefits of homeownership (mortgage interest deduction) offset some PMI costs
- You expect significant income growth and can remove PMI quickly
Consider Waiting If:
- You're close to having a 20% down payment saved
- Your credit score is low (higher PMI rates make it more expensive)
- Home prices in your area are stable or declining
- You're uncertain about staying in the home long-term
Run the Numbers
Calculate the total cost of PMI over the expected time to reach 20% equity. Compare this to the cost of renting while saving for a larger down payment, including potential home price appreciation you'd miss out on.
Work With a Local Real Estate Expert
Understanding PMI is just one piece of the home buying puzzle. A knowledgeable real estate agent can help you navigate financing options, negotiate the best deal, and connect you with trusted mortgage lenders who offer competitive PMI rates.
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What is PMI on a mortgage?
PMI (private mortgage insurance) is insurance that protects your lender if you default on your conventional mortgage loan. It's required when you make a down payment of less than 20% and typically costs between 0.3% and 1.5% of your loan amount annually. PMI is added to your monthly mortgage payment until you reach 20% equity in your home.
How much does PMI cost per month?
PMI typically costs between $50 and $300 per month, depending on your loan amount, down payment, and credit score. On a $300,000 loan with a 0.5% PMI rate, you'd pay about $125 per month. Borrowers with higher credit scores and larger down payments pay lower PMI rates.
How do I get rid of PMI?
You can remove PMI by: (1) requesting cancellation when your loan balance reaches 80% of the original home value, (2) waiting for automatic termination at 78% LTV, (3) getting a new appraisal to prove you have 20% equity due to home appreciation, or (4) refinancing your mortgage once you have sufficient equity. Contact your loan servicer to learn about their specific requirements.
Can I avoid PMI with less than 20% down?
Yes, there are several ways to avoid PMI with less than 20% down: (1) Use a piggyback loan (80/10/10) that combines two mortgages, (2) choose a VA loan if you're eligible (no PMI required), (3) select a USDA loan for eligible rural properties, or (4) negotiate lender-paid PMI where the cost is built into a higher interest rate.
Is PMI tax deductible in 2026?
PMI tax deductibility has been subject to Congressional renewal over the years. Check current IRS guidelines or consult a tax professional for the latest information on whether PMI premiums are deductible for your tax situation. Income limits may apply if the deduction is available.
What is the difference between PMI and MIP?
PMI (private mortgage insurance) applies to conventional loans and can be canceled once you reach 20% equity. MIP (mortgage insurance premium) applies to FHA loans and typically lasts for the life of the loan if you put down less than 10%. FHA loans also require an upfront MIP payment of 1.75% of the loan amount, while PMI doesn't require an upfront payment unless you choose single-premium PMI.
Does PMI protect me as the borrower?
No, PMI protects the lender, not you. If you default on your mortgage, PMI reimburses the lender for their losses. However, PMI indirectly benefits you by allowing homeownership with a smaller down payment. Without PMI, lenders would require 20% down on all conventional loans, making homeownership less accessible.
How long do you have to pay PMI?
You typically pay PMI until your loan balance reaches 78-80% of the original home value. On a 30-year mortgage with 5% down, this usually takes 8-11 years through regular payments. However, you can remove PMI sooner if your home appreciates in value or if you make extra principal payments to reach 20% equity faster.