What is PMI?
Private mortgage insurance is a policy that protects your lender — not you — if you default on a conventional mortgage. When a borrower puts down less than 20% of the home's price, the lender is taking on more risk, because a smaller down payment means less equity cushion if home values dip or the borrower can't keep paying. PMI is how conventional lenders offset that risk, which is what makes low-down-payment conventional loans possible in the first place. It's a separate cost from your principal, interest, property tax, and homeowners insurance, but it's typically bundled into one monthly mortgage payment.
When do lenders require it?
On a conventional loan, PMI is generally required whenever your down payment is less than 20% of the home's purchase price (equivalently, when your loan-to-value ratio, or LTV, is above 80%). This isn't a one-off rule from a single lender — it's standard practice across conventional mortgages, because that 20%-down threshold is the level of borrower equity most lenders treat as "safe enough" to not need extra insurance.
Note that PMI is specific to conventional loans. Government-backed loans use different mortgage insurance structures entirely — FHA loans have their own mortgage insurance premium (MIP) with different removal rules (in many cases, MIP lasts for the life of an FHA loan unless refinanced), and VA loans typically don't require mortgage insurance at all. This guide covers PMI on conventional loans specifically.
How much does PMI typically cost?
PMI is usually priced as a percentage of your loan amount per year, commonly cited in the range of roughly 0.3% to 1.5% of the loan amount annually, split into monthly installments. The exact rate a lender quotes you depends on your credit score, your down payment size, your loan type, and the PMI provider — it's not a flat, universal number. Because of that variability, this site's mortgage calculator asks you to enter your lender's quoted monthly PMI dollar amount directly rather than estimating a rate for you, so the total monthly payment you see reflects your actual quote rather than a generic guess.
Rough cost example
On a $350,000 loan, a PMI rate in the middle of that typical range (say, ~0.6% annually) would work out to about $2,100/year, or roughly $175/month. A borrower with a lower credit score or a smaller down payment might see a rate closer to 1% or more; a borrower with excellent credit and a down payment just under 20% might see a rate closer to the low end. Get your lender's exact quote — this is illustrative only.
When can PMI be removed?
This is where a specific federal law matters, and it's worth knowing the exact thresholds rather than a vague "when you have enough equity." The Homeowners Protection Act of 1998 (Public Law 105-216, sometimes called the "PMI Cancellation Act"), which took effect July 29, 1999, sets two clear triggers for conventional mortgages:
- Automatic termination at 78% LTV. Once your loan's principal balance is scheduled to reach 78% of the home's original value — based on your original amortization schedule — your lender is legally required to automatically terminate PMI, as long as your loan payments are current at that point. You don't have to ask; this is supposed to happen on its own.
- Borrower-requested cancellation at 80% LTV. You don't have to wait for the automatic 78% trigger. Once your LTV reaches 80% — either through your normal amortization schedule, extra principal payments, or in some cases a new appraisal showing your home has appreciated — you can proactively request that your lender cancel PMI, generally as long as you have a good payment history and meet the lender's requirements (some lenders may require the loan to have reached this point through actual payments/appreciation, and may charge for a new appraisal if you're requesting removal based on appreciation rather than scheduled amortization).
Sources: Homeowners Protection Act of 1998, Public Law 105-216 (Congress.gov, S.318); FDIC Consumer Compliance Examination Manual, "V-5 Homeowners Protection Act" (fdic.gov); NCUA compliance guide (ncua.gov).
How do I know when I'll hit these thresholds?
Because the 78% automatic-termination trigger is based on your original amortization schedule, you can find the exact scheduled payment number where your loan crosses that line by generating your full schedule. Use the amortization schedule calculator, enter your original loan amount, rate, and term, and look for the payment where your remaining balance first drops to 78% (or 80%, for the request-based option) of your home's original purchase price. See how to read an amortization schedule for a walkthrough of exactly which column to check.
Frequently asked questions
What's the difference between the 78% and 80% thresholds?
80% LTV is the point at which you're eligible to proactively request that your lender cancel PMI. 78% LTV is the point at which your lender is legally required to automatically terminate it without you asking, provided your payments are current. In practice, many borrowers use the 80% request option to remove PMI a bit sooner than the automatic 78% cutoff.
Can rising home values help me remove PMI sooner?
Potentially. If your home's market value has increased, your actual equity percentage may be higher than your original amortization schedule suggests. Some lenders will let you request PMI cancellation based on a new appraisal showing you've reached 80% LTV using current value, though this typically isn't automatic and often requires paying for the appraisal yourself — ask your loan servicer about their specific policy.
Does this apply to FHA loans too?
No. This guide covers PMI on conventional loans. FHA loans use a different mortgage insurance premium (MIP) with its own separate rules, which in many cases cannot be canceled the same way and may last for the life of the loan unless you refinance into a conventional loan.
Is PMI tax-deductible?
Mortgage insurance premium deductibility has changed several times in US tax law and depends on current-year rules and your income level. This is a tax question specific to your situation — check with a tax professional or the current IRS guidance rather than relying on general information here.