A PMI payment is money you pay each month to insure your lender's investment, not to protect you

PMI stands for private mortgage insurance. When you buy a home with a down payment smaller than 20 percent of the purchase price, your lender requires you to carry PMI. The payment goes to an insurance company, not to your lender, and it protects the lender if you stop paying your mortgage — not you.

Think of it this way: if you put down 10 percent and then default on the loan, the lender loses money on the remaining 90 percent. PMI covers part of that loss. Because you are the one creating that risk by putting down less than 20 percent, you pay the premium.

PMI is separate from your mortgage payment itself. Your lender adds it to your monthly bill, but it goes to a different company and does nothing to build equity in your home. Once you reach 20 percent equity — either by paying down the principal or by your home's value rising — you can request to have PMI removed.

Key Takeaways

  • PMI protects your lender if you default, not you, and is required when your down payment is less than 20 percent of the home's purchase price.
  • Your monthly PMI payment is added to your mortgage bill but goes to an insurance company, not your lender, and does not build equity.
  • The amount you pay depends on the loan amount, your down payment percentage, your credit score, and the insurance company's rates.
  • You can request PMI removal once you reach 20 percent equity in your home through principal payments or home value appreciation.
  • Some loans, like FHA mortgages, use mortgage insurance instead of PMI, with different rules for removal.

How much a PMI payment typically costs

PMI payments vary based on four main factors: how much you borrowed, how much you put down, your credit score, and which insurance company your lender chose. There is no single PMI rate — different lenders use different insurers, and rates change.

Generally, PMI costs between 0.3 and 1.5 percent of your loan amount per year, paid in monthly installments. On a $300,000 loan, that could range from roughly $75 to $375 per month, but your actual payment depends on your specific situation. Your lender will show you the exact PMI amount before you close on the home.

Borrowers with higher credit scores usually pay lower PMI rates than those with lower scores. Someone with a 740 credit score might pay less than someone with a 620 score on the same loan amount. Your down payment percentage also matters — putting down 15 percent costs more in PMI than putting down 19 percent, because the lender's risk is higher.

When PMI gets added to your monthly bill

PMI starts on the day you close on your home. Your lender rolls it into your monthly mortgage payment, so you do not write a separate check — it appears as a line item on your mortgage statement.

The payment stays on your bill every month until you reach 20 percent equity in your home. At that point, you can contact your lender and request removal. Some lenders will remove it automatically once you hit that threshold, but many require you to ask. Check your loan documents or call your lender to understand their specific policy.

The difference between PMI and mortgage insurance on FHA loans

If you took out an FHA loan (a loan insured by the Federal Housing Administration), you do not pay PMI — you pay mortgage insurance instead. The concept is similar, but the rules for removal are different.

FHA mortgage insurance has two parts: an upfront premium paid at closing, and an annual premium split into monthly payments. The upfront premium is usually 1.75 percent of the loan amount and is often rolled into your loan balance. The annual premium varies but typically ranges from 0.55 to 0.8 percent of the loan amount per year.

Unlike PMI, FHA mortgage insurance cannot be removed straightforward by reaching 20 percent equity. If you put down less than 10 percent, the insurance stays for the life of the loan. If you put down 10 percent or more, it can be removed after 11 years of payments. This is one reason some borrowers choose conventional loans with PMI instead of FHA loans — PMI can be removed faster.

How to request PMI removal

Once you have paid your mortgage down to 80 percent of the original home value (meaning you have 20 percent equity), you can ask your lender to remove PMI. Contact your loan servicer — the company that handles your monthly payments — and request PMI cancellation in writing.

Your lender may require you to provide proof of the home's current value. If your home has appreciated since you bought it, an appraisal can show that you have reached 20 percent equity even if you have not paid down the principal that much. Some lenders accept a recent property tax assessment or a broker's opinion of value instead of a full appraisal.

The removal process typically takes two to four weeks once your lender receives your request and any required documentation. After removal, your monthly payment drops because PMI no longer appears on your bill.

What happens if you refinance your mortgage

If you refinance your home loan, your PMI situation resets. If you refinance into a new loan with less than 20 percent equity, you will need to pay PMI again on the new loan. If you refinance when you already have 20 percent equity, you can refinance without PMI.

Some borrowers refinance specifically to remove PMI. If your home has appreciated significantly since you bought it, you might have 20 percent equity even though you have not paid down the original loan that much. A refinance at that point lets you start fresh without PMI.

Before refinancing, compare the cost of PMI on your current loan against the closing costs of refinancing. If you are close to 20 percent equity, it may be cheaper to wait and request removal than to pay refinance fees.

Frequently Asked Questions

Can I avoid PMI by putting down 19.9 percent instead of 20 percent?

No. PMI is required if your down payment is less than 20 percent, even by a fraction. If you are close to 20 percent, it is usually worth waiting or saving a bit more to avoid PMI entirely, since the insurance costs add up over time.

Does PMI ever protect me if something goes wrong with the home?

No. PMI protects only your lender if you default on the loan. It does not cover home repairs, damage, or defects. That is why you need separate homeowners insurance, which protects your own investment in the property.

What if my home value drops after I buy it?

You still owe the full loan amount, and PMI stays in place until you reach 20 percent equity based on the original purchase price or a current appraisal. If your home loses value, reaching that equity threshold takes longer because you need to pay down more principal.

Can I pay PMI upfront instead of monthly?

Some lenders offer the option to pay PMI as a lump sum at closing instead of monthly installments. This is called a single premium. Compare the total cost of single premium versus monthly payments over the years you expect to carry PMI — sometimes one is cheaper than the other depending on your situation.

Do I need PMI if I am buying with a co-borrower?

PMI depends on the down payment and loan amount, not on how many people are on the loan. If you and a co-borrower together put down less than 20 percent, PMI is required. The payment is the same whether one or two people are borrowing.