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Private Mortgage Insurance (PMI)
PMI is insurance that protects your mortgage lender if you default on your loan. It is required when your down payment is less than 20% of the home's purchase price.
How It Works
Private Mortgage Insurance (PMI) is a monthly premium added to your mortgage payment when you put less than 20% down on a conventional loan. PMI protects the lender — not you — against losses if you stop making payments. The cost typically ranges from 0.3% to 1.5% of the original loan amount per year, depending on your credit score, down payment size, and loan type. On a $360,000 loan, PMI might cost $75 to $450 per month. PMI is automatically cancelled once your loan balance reaches 78% of the original home value, or you can request cancellation at 80% loan-to-value (LTV). FHA loans have a similar concept called Mortgage Insurance Premium (MIP), but FHA MIP lasts for the life of the loan if you put less than 10% down.
Key Facts
Required on conventional loans with less than 20% down payment
Costs 0.3% to 1.5% of the loan amount per year
Automatically cancelled at 78% LTV; can request cancellation at 80% LTV
FHA mortgage insurance (MIP) is different — it lasts for the life of the loan
PMI protects the lender, not the borrower
Higher credit scores result in lower PMI rates
Example
On a $400,000 home with 10% down ($40,000), your loan is $360,000. At a PMI rate of 0.5%, you'd pay $1,800/year or $150/month in PMI. Once your balance drops to $320,000 (80% of $400,000), you can request PMI cancellation.
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Frequently Asked Questions
PMI is automatically removed when your loan balance reaches 78% of the original home value. You can also request removal at 80% LTV by contacting your servicer. Other strategies include making extra payments to reach 80% faster, getting a new appraisal if your home has appreciated, or refinancing.
The PMI tax deduction has been extended and expired multiple times. Check current IRS guidelines for the latest status. When available, it allows you to deduct PMI premiums as mortgage interest if your adjusted gross income is below certain thresholds.
PMI typically costs $50 to $450 per month depending on your loan amount, down payment, and credit score. On a $300,000 loan with 10% down and a 720 credit score, expect to pay around $100-$150/month.