PMI: What It Is, What It Costs, and How to Remove It

Private Mortgage Insurance (PMI) can add hundreds of dollars to your monthly mortgage payment—money that doesn't build equity or reduce your principal. On a $400,000 loan, PMI typically costs $167-$333 per month, or $2,000-$4,000 per year.

But here's the good news: PMI is temporary, avoidable, and removable. This guide explains exactly what PMI is, how much it costs, strategies to avoid it, and the fastest ways to eliminate it once you have it.

What Is PMI?

Private Mortgage Insurance (PMI) is insurance that protects the lender (not you) if you default on your loan. Lenders require PMI when you put down less than 20% because loans with smaller down payments are statistically riskier.

Key points:

• Protects the lender, not you
• Required on conventional loans with less than 20% down
• Added to your monthly payment or paid upfront
• Can be removed once you reach 20% equity
• Not tax deductible for most borrowers (as of 2026)

PMI vs. MIP vs. Funding Fee

Don't confuse PMI with other mortgage insurance:

PMI (Private Mortgage Insurance)

• Conventional loans only
• Can be removed at 20% equity
• Cost: 0.5%-2% of loan annually

MIP (Mortgage Insurance Premium)

• FHA loans only
• Requires 11 years minimum (or life of loan if <10% down)
• Cost: 0.55%-0.85% annually + 1.75% upfront

VA Funding Fee

• VA loans only
• One-time upfront fee
• Cost: 2.15%-3.3% (waived for disabled veterans)
• No monthly insurance

USDA Guarantee Fee

• USDA loans only
• 1% upfront + 0.35% annual
• Remains for life of loan

This guide focuses on PMI for conventional loans.

How Much Does PMI Cost?

PMI typically costs 0.5%-2% of your loan amount per year, depending on:

• Credit score (higher score = lower PMI)
• Down payment amount (more down = lower PMI)
• Loan type (fixed vs. ARM)
• Coverage percentage (lender's choice, usually 25%-30%)

PMI Cost Examples

Scenario 1: $400,000 loan, 5% down, 740 credit score

• PMI rate: ~0.5% annually
• Monthly PMI: $167
• Annual PMI: $2,000

Scenario 2: $400,000 loan, 5% down, 680 credit score

• PMI rate: ~1% annually
• Monthly PMI: $333
• Annual PMI: $4,000

Scenario 3: $400,000 loan, 10% down, 740 credit score

• PMI rate: ~0.4% annually
• Monthly PMI: $133
• Annual PMI: $1,600

Scenario 4: $400,000 loan, 15% down, 740 credit score

• PMI rate: ~0.3% annually
• Monthly PMI: $100
• Annual PMI: $1,200

The pattern: More down payment + higher credit score = lower PMI.

Factors That Affect PMI Cost

1. Credit Score

• 760+: 0.3%-0.5% PMI rate
• 700-759: 0.5%-0.8% PMI rate
• 680-699: 0.8%-1.2% PMI rate
• 660-679: 1.0%-1.5% PMI rate
• 620-659: 1.5%-2.0% PMI rate

Impact: On a $400,000 loan, the difference between 760 and 660 credit score can be $200+/month in PMI.

2. Down Payment

• 19% down: Lowest PMI rate
• 15% down: Moderate PMI rate
• 10% down: Higher PMI rate
• 5% down: Highest PMI rate
• 3% down: Maximum PMI rate

Strategy: Even 1% more down payment can reduce PMI significantly.

3. Loan Type

• Fixed-rate mortgage: Standard PMI rates
• ARM (adjustable-rate): Slightly higher PMI
• High-balance/jumbo conforming: Higher PMI

4. Occupancy

• Primary residence: Standard rates
• Second home: Higher rates
• Investment property: Significantly higher (often 20% down required anyway)

5. Loan-to-Value Ratio (LTV)

• 95% LTV (5% down): Highest PMI
• 90% LTV (10% down): High PMI
• 85% LTV (15% down): Moderate PMI
• 80% LTV (20% down): No PMI required

Types of PMI

1. Borrower-Paid Monthly PMI (Most Common)

• Added to your monthly payment
• Example: $2,000 mortgage + $167 PMI = $2,167 total
• Can be canceled at 20% equity
• Most flexible option

Pros:

• No large upfront cost
• Cancellable
• Lower initial cash needed

Cons:

• Increases monthly payment
• Not tax deductible for most

2. Lender-Paid PMI (LPMI)

• Built into your interest rate
• Lender pays PMI, charges you higher rate (typically 0.25%-0.5% higher)
• Cannot be removed—rate stays higher forever

Example:

• Standard: 7.00% rate + $167/month PMI
• LPMI: 7.375% rate, no separate PMI

Pros:

• Lower monthly payment (initially)
• No separate PMI payment
• Easier qualification (lower DTI)

Cons:

• Can't remove it later
• Pay more interest over life of loan
• Worse deal if you keep loan long-term

Best for: Borrowers who plan to refinance within 3-5 years.

3. Single-Premium PMI (Paid Upfront)

• Pay entire PMI premium at closing
• One-time fee instead of monthly payments
• Typically cheaper over time than monthly PMI

Cost: 2%-3% of loan amount paid upfront

Example: $400,000 loan = $8,000-$12,000 at closing

Pros:

• Lower total cost over time
• Lower monthly payment
• No ongoing PMI payments

Cons:

• Large upfront cost
• Non-refundable if you sell/refinance early
• Ties up cash

Best for: Borrowers with cash who plan to stay long-term but can't hit 20% down.

4. Split-Premium PMI

• Combination of upfront and monthly
• Pay portion upfront, smaller monthly payment
• Less common

Best for: Balancing cash flow and upfront costs.

How to Avoid PMI

Strategy 1: Put 20% Down

The straightforward approach:

• Save until you have 20% down payment
• No PMI from day one
• Lower payment, more equity

Challenge: Takes longer to save, larger upfront cost

Example:

• $400,000 home
• 20% down = $80,000
• Avoids ~$167-$333/month PMI

Strategy 2: Piggyback Loan (80-10-10 or 80-15-5)

How it works:

• First mortgage: 80% of home value (no PMI)
• Second mortgage ([HELOC or [home equity loan](/blog/best-heloc-lenders-2026)](/blog/home-equity-loan-vs-heloc-2026)): 10%-15%
• Down payment: 5%-10%

Example: 80-10-10

• $400,000 home
• First mortgage: $320,000 (80%)
• Second mortgage: $40,000 (10%)
• Down payment: $40,000 (10%)
• Total: No PMI

Pros:

• Avoid PMI with less than 20% down
• Second mortgage interest may be tax deductible
• Can pay off second loan faster

Cons:

• Two monthly payments
• Second mortgage has higher rate (typically 1%-3% higher)
• More complex qualification
• Less common in 2026 (lenders tightened standards)

Best for: Borrowers with strong income who can handle two payments and want to avoid PMI.

Strategy 3: VA Loan (Veterans Only)

• No PMI ever, regardless of down payment
• 0% down available
• VA funding fee instead (2.15%-3.3%, can be financed)
• Waived for disabled veterans

Best for: Eligible veterans and service members.

Strategy 4: USDA Loan (Rural/Suburban Areas)

• No PMI (has guarantee fee instead)
• 0% down available
• Income and location restrictions
• 1% upfront fee + 0.35% annual fee (lower than PMI)

Best for: Eligible buyers in USDA-approved areas.

Strategy 5: Lender-Paid PMI (LPMI)

• Accept higher interest rate
• No separate PMI payment
• Good if refinancing within 3-5 years

Best for: Short-term homeowners expecting to refinance.

Strategy 6: Gift/[Down Payment Assistance](/blog/down-payment-assistance-programs)

• Receive gifted down payment to reach 20%
• [Down payment assistance programs](/blog/first-time-homebuyer-grants-2026)
• Employer relocation/homebuying programs

Best for: Borrowers with family support or eligible for assistance.

How to Remove PMI

Once you have PMI, here are the fastest ways to eliminate it:

Method 1: Automatic Termination (Slowest)

How it works:

• Lender automatically cancels PMI when you reach 78% LTV
• Based on original [amortization schedule](/blog/amortization-schedule-guide)
• No action required

Timeline: Typically 5-11 years depending on down payment

Example:

• $400,000 loan, 5% down ($380,000 loan amount)
• 78% LTV = $312,000 remaining balance
• Paying $68,000 in principal = ~9 years

Pros: Automatic, no effort

Cons: Slowest method, you overpay PMI for years

Method 2: Request Cancellation at 80% LTV (Faster)

How it works:

• Request PMI removal when you reach 80% LTV
• Based on original property value
• Must have good payment history

Requirements:

• Reach 80% LTV (20% equity)
• No late payments in past year
• No second liens
• Written request to lender

Timeline: Typically 3-7 years depending on down payment

Example:

• $400,000 original value
• 80% LTV = $320,000 loan balance
• If you started with $380,000 loan, need to pay down $60,000

Pros: Faster than waiting for 78%

Cons: Still takes several years with regular payments

Method 3: Reappraisal Based on Current Value (Fastest)

How it works:

• Order new appraisal
• If home value increased, you may have 20%+ equity even with less than 20% paid down
• Request PMI removal based on new value

Requirements:

• At least 2 years of payments (some lenders require 5)
• 75%-80% LTV based on current value
• Pay for new appraisal ($400-$800)
• Good payment history

Example:

• Original purchase: $400,000 (5% down, $380,000 loan)
• After 2 years: Home worth $450,000
• Loan balance: $368,000
• New LTV: 81.8% (almost there)
• After 3 years: Loan balance $363,000, LTV: 80.7%
• New appraisal shows $475,000 value
• New LTV: 76.4% → PMI removed!

Pros: Fastest method in appreciating markets

Cons:

• Appraisal cost ($400-$800)
• Not guaranteed (lender may deny)
• Need significant appreciation

Best for: Hot markets with rapid appreciation.

Method 4: Home Improvements + Reappraisal

How it works:

• Make value-adding improvements
• Order reappraisal
• Increased value brings LTV under 80%
• Request PMI removal

Best improvements for value:

• Kitchen remodel: 60%-80% ROI
• Bathroom remodel: 60%-70% ROI
• Finished basement: 70%-75% ROI
• Deck/patio: 60%-80% ROI

Example:

• $400,000 home, $380,000 loan (95% LTV)
• Spend $40,000 on kitchen/bath remodel
• New appraised value: $460,000
• New LTV: 82.6%
• Plus normal payments bring it under 80%

Pros: Improve home while building equity

Cons: Requires upfront cash, ROI not guaranteed

Method 5: Lump Sum Principal Payment

How it works:

• Make large extra payment to principal
• Bring LTV to 80% or below
• Request PMI removal

Example:

• $400,000 home, $380,000 current balance (95% LTV)
• Make $60,000 lump sum payment
• New balance: $320,000
• New LTV: 80% → PMI removed

Sources for lump sum:

• Bonus/windfall
• Tax refund
• Inheritance
• Sale of assets

Pros: Immediate PMI removal if you have cash

Cons: Requires significant cash

Is it worth it?

• PMI savings: $167-$333/month
• $60,000 payment eliminates $2,000-$4,000/year PMI
• Payback period: 15-30 years
• Compare to: [Investment returns](/blog/cash-on-cash-return-explained), debt payoff, emergency fund needs

Method 6: Refinance (When Rates Are Good)

How it works:

• Refinance to new loan
• If you have 20%+ equity (from appreciation + paydown), new loan has no PMI
• Makes most sense when rates drop

Example:

• Original: $400,000 home, $380,000 loan, 7% rate + $167 PMI
• After 3 years: $460,000 value, $363,000 balance
• LTV: 78.9%
• Refinance at 5.5% to $368,000 (pay closing costs)
• New LTV: 80%, no PMI, lower rate

Pros: Remove PMI + potentially lower rate

Cons: Closing costs, resets loan term

Best for: When rates drop significantly and you have enough equity.

PMI Removal Request: Step by Step

1. Calculate your LTV

   • Current loan balance ÷ original (or current) property value
   • Need 80% or below

2. Check your payment history

   • No late payments in past 12 months
   • Current on all payments

3. Gather documentation

   • Recent mortgage statement
   • Payment history
   • Appraisal (if using current value)

4. Submit written request

   • Contact your loan servicer
   • Request PMI cancellation form
   • Include LTV calculation and documentation

5. Pay for appraisal (if required)

   • Lender may require new appraisal
   • Cost: $400-$800
   • Lender chooses appraiser

6. Wait for decision

   • 10-30 days for processing
   • Lender may approve, deny, or request more info

7. Confirm removal

   • Check next mortgage statement
   • Verify PMI is removed
   • Confirm payment amount decreased

Common PMI Removal Mistakes

1. Not tracking your LTV - Most homeowners don't monitor equity buildup
2. Waiting for automatic termination - Leaves money on table for years
3. Not knowing reappraisal is an option - Miss opportunity in hot markets
4. Ignoring payment history - Late payments delay eligibility
5. Not requesting in writing - Verbal requests aren't honored
6. Assuming appreciation will be enough - Markets can be flat or decline
7. Forgetting about the 2-year seasoning - Some lenders require 2-5 years before considering current value

Is It Worth Paying to Remove PMI Early?

The math:

Let's say paying $10,000 extra toward principal removes PMI:

• PMI cost: $200/month ($2,400/year)
• Payback period: $10,000 ÷ $2,400 = 4.2 years
• After 4.2 years, you're saving money

Compare to:

• High-interest debt: Pay off credit cards first (15%-25% APY)
• Emergency fund: Keep 3-6 months expenses liquid
• Retirement accounts: 401(k) match, tax advantages
• Investment returns: S&P 500 historical ~10% annual return

Rule of thumb: If you can get >10% returns elsewhere, invest instead of paying down mortgage.

But also consider:

• Guaranteed savings from PMI removal vs. uncertain investment returns
• Cash flow improvement - Lower monthly payment
• Peace of mind - No PMI payment

PMI Tax Deductibility

As of 2026:

• PMI is generally NOT tax deductible
• Deduction expired at end of 2021
• Congress has not renewed it

Historically (2007-2021):

• PMI was deductible for taxpayers with AGI under $100,000
• Phased out at higher incomes

Check with tax professional - Tax laws can change.

PMI vs. Larger Down Payment: What's Better?

Scenario 1: Wait and save 20%

• Pros: No PMI, lower payment, more equity
• Cons: Housing market may appreciate while you save, rents may increase

Scenario 2: Buy now with <20% down

• Pros: Stop paying rent, start building equity, capture appreciation
• Cons: PMI costs $2,000-$4,000/year, higher monthly payment

The break-even question: If home appreciates 5% annually and you're paying 3% in rent increase, buying sooner may win even with PMI.

Run the numbers:

• Rent increase while you save
• Home appreciation during wait period
• PMI cost over expected holding period
• Opportunity cost of down payment funds

Often: Buying with PMI beats waiting if you plan to stay long-term and market is appreciating.

PMI on Different Loan Types

Conventional 97 (3% Down)

• PMI: 1.5%-2% annually
• Example: $400,000 home, $388,000 loan, $485-$647/month PMI
• Highest PMI cost

Conventional 90 (10% Down)

• PMI: 0.6%-1% annually
• Example: $400,000 home, $360,000 loan, $180-$300/month PMI
• Moderate PMI cost

Conventional 85 (15% Down)

• PMI: 0.4%-0.7% annually
• Example: $400,000 home, $340,000 loan, $113-$198/month PMI
• Lower PMI cost

HomeReady/Home Possible (3%-5% Down, Low/Moderate Income)

• PMI: Slightly lower than standard conventional
• Income limits apply
• Otherwise similar to conventional PMI

Bottom Line: PMI Strategy

If you're buying:

1. Ideal: Put 20% down, avoid PMI entirely
2. Good: Use piggyback loan (80-10-10) if available
3. Acceptable: Put <20% down, pay PMI, plan to remove it ASAP
4. Consider: Single-premium PMI if you have cash but not quite 20%
5. Avoid if possible: Lender-paid PMI unless you're certain you'll refinance soon

If you have PMI:

1. Track your LTV monthly - Know when you're approaching 80%
2. Monitor home values - Use Zillow, Redfin estimates (not perfect but directional)
3. Request removal at 80% LTV - Don't wait for automatic 78%
4. Consider reappraisal - Especially in hot markets after 2+ years
5. Make extra payments - Even $100/month accelerates PMI removal
6. Plan for refinance - When rates drop and you have 20% equity

The big picture: PMI costs $2,000-$4,000 per year on a typical loan. Over 5 years, that's $10,000-$20,000 that doesn't build equity. But it's not the end of the world—it gets you into a home sooner, lets you start building equity, and is removable.

Don't let PMI stop you from buying if the numbers otherwise make sense. Just have a plan to eliminate it as quickly as possible. Track your equity, be proactive, and request removal the moment you're eligible.

Your lender won't tell you when you can remove PMI—you have to ask. So ask. And keep asking until that monthly payment drops.

Related Articles

• Down Payment Assistance Programs in 2026: Complete Guide
• [Using a HELOC for an [Investment Property Down Payment](/blog/investment-property-down-payment): Smart Strategy or Risky Move?](/blog/heloc-for-investment-property-down-payment)
• [Home [Equity Explained](/blog/home-equity-explained): What It Is and How to Build It](/blog/home-equity-explained)