Definition
Private mortgage insurance (PMI)
Private mortgage insurance (PMI) is insurance that protects the lender, not the borrower, on a conventional mortgage when the down payment is under 20% of the value. It is usually paid monthly as part of the mortgage payment and can be removed once enough equity builds up.
PMI lets lenders make conventional loans above 80% loan-to-value. Pricing depends mainly on LTV and credit score, plus factors such as occupancy, loan term and coverage level. The premium is quoted as an annual percentage of the loan and usually collected monthly, though single-premium and lender-paid options also exist.
Worked example. A buyer borrows $300,000 with 5% down. At an illustrative annual PMI rate of 0.6%, the premium is $1,800 a year, or $150 a month added to PITI. A borrower with a higher score or 10% down might see a noticeably lower rate.
Under the Homeowners Protection Act, borrowers can ask the servicer to cancel borrower-paid PMI once the balance reaches 80% of the original value, provided they have a good payment history and meet the servicer's conditions. PMI ends automatically when the scheduled balance reaches 78% of the original value if payments are current. Some servicers allow removal based on a new appraisal when the home has appreciated, under their own rules.
PMI is a conventional-loan product. FHA loans use their own mortgage insurance premium, and VA and USDA loans use a funding fee and guarantee fee instead. The PMI calculator estimates the monthly cost and the projected drop-off date.
Calculators that use this term
FAQ · 2 questions
Questions about Private mortgage insurance (PMI)
Do I have to put 20% down to avoid PMI?
On a conventional loan, generally yes, or use a structure such as a piggyback second mortgage. Many buyers choose to pay PMI instead because it lets them buy sooner with less cash.
How do I get PMI removed early?
You can ask your servicer to cancel it once your balance reaches 80% of the original value through payments or extra principal. Some servicers also allow removal based on a new appraisal if the home has gained value; ask about their rules.
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