How Much Is PMI and How to Avoid It
PMI costs $50-$450/month depending on your loan amount and credit score. It's required with less than 20% down and drops off at 80% LTV. Here are five strategies to eliminate it.
What PMI Costs
Private Mortgage Insurance (PMI) typically costs 0.3% to 1.5% of your loan amount per year, paid monthly. The exact rate depends on your credit score, down payment, and loan amount.
| Credit Score | 5% Down | 10% Down | 15% Down |
|---|---|---|---|
| 760+ | 0.30% | 0.20% | 0.15% |
| 720-759 | 0.45% | 0.30% | 0.20% |
| 680-719 | 0.65% | 0.45% | 0.30% |
| 640-679 | 0.90% | 0.65% | 0.45% |
| 620-639 | 1.20% | 0.90% | 0.65% |
On a $300,000 loan with 5% down and a 720 credit score, PMI would cost about $1,283/year or $107/month.
When PMI Drops Off
For conventional loans, PMI is removed in two ways:
- Automatic removal at 78% LTV: Your lender must cancel PMI when your loan balance reaches 78% of the original home value, based on the amortization schedule.
- Request removal at 80% LTV: You can request cancellation when you reach 80% LTV. This can happen faster if your home has appreciated.
5 Strategies to Avoid or Eliminate PMI
- Put 20% down. The most straightforward way. No PMI, period. But it requires significant savings.
- Piggyback loan (80/10/10). Take a first mortgage for 80%, a second mortgage (HELOC) for 10%, and put 10% down. No PMI on the first mortgage, though the HELOC has a higher rate.
- Lender-paid PMI (LPMI). The lender pays PMI in exchange for a higher interest rate. Good if you plan to stay long-term, since the higher rate is permanent.
- Make extra payments. Pay down your principal faster to reach 80% LTV sooner. Even $200/month extra can shave years off your PMI.
- Get a new appraisal. If your home has appreciated significantly, a new appraisal showing 80%+ equity can trigger PMI removal — even if your payment schedule hasn't reached that point yet.
Is PMI Always Bad?
Not necessarily. PMI lets you buy a home with less than 20% down. If home prices are rising 5% per year and you're paying 0.5% in PMI, you're still building equity faster than you're paying insurance. The key is whether the total cost of homeownership (including PMI) makes sense compared to renting and saving for a larger down payment.
The Bottom Line
PMI is a cost, not a penalty. It's the price of buying sooner with less money down. For many buyers, paying PMI for a few years is worth it to start building equity now rather than waiting years to save 20%. Use our PMI Calculator to see your exact cost and when it drops off.
Run the Numbers
Try these calculators to apply what you learned