PMI is mortgage insurance you pay when you put down less than 20 percent

Private Mortgage Insurance (PMI) is a monthly fee added to your mortgage payment when your down payment is smaller than 20 percent of the home's purchase price. The lender requires it because a smaller down payment means higher risk for them — if you default, they have less equity cushion to recover their money. PMI protects the lender, not you, and you pay for it.

The cost ranges widely depending on your loan amount, credit score, and down payment size. A borrower with a 5 percent down payment and a 650 credit score will pay more than someone with a 15 percent down payment and a 750 score. There is no single PMI rate; each lender calculates it differently, and rates vary by the insurance company they use.

PMI stays on your loan until you reach 20 percent equity in the home — either by paying down the principal or by the home's value rising. On a 30-year mortgage, this can take 10 to 15 years, depending on your down payment and how fast you pay.

Key Takeaways

  • PMI is required when your down payment is less than 20 percent and is added to your monthly mortgage bill.
  • The cost depends on your down payment size, loan amount, credit score, and the lender's insurance partner, so it varies significantly between borrowers.
  • PMI protects the lender if you default, not you, and you cannot avoid paying it if you want to borrow with a smaller down payment.
  • You can request PMI removal once you have paid your loan down to 80 percent of the original home value, though some loans require you to wait until a certain point.

How PMI is calculated and what it costs per month

PMI is usually expressed as an annual percentage of your loan amount, called the annual mortgage insurance premium (AMIP). A lender might quote you 0.5 to 1.5 percent per year, depending on risk factors. On a $300,000 loan at 1 percent AMIP, you would pay $3,000 per year, or $250 per month.

Your credit score has a real impact. A score of 740 or higher typically gets a lower rate than a score of 680. Your down payment size matters just as much: putting down 10 percent costs more per month than putting down 15 percent, because the lender's risk is higher. Some lenders also factor in your debt-to-income ratio — how much you already owe relative to your income.

PMI is not the same as homeowners insurance or property taxes. Those are separate costs. PMI is purely the lender's protection against your default, and it disappears once you build enough equity.

When PMI comes off your loan

PMI can be removed in two ways: you can request it, or it can drop off automatically. Automatic removal happens when your loan balance reaches 78 percent of the original purchase price — this is required by federal law. On a $300,000 home, automatic removal triggers at a $234,000 loan balance.

You can request removal earlier, usually once you reach 80 percent equity (a $240,000 balance on that same $300,000 home). Some lenders allow this after two years of on-time payments; others require five years. You will need to request it in writing, and the lender may order an appraisal to confirm the home's current value. If your home has appreciated, you might reach 80 percent equity faster than your principal payments alone would get you there.

Refinancing can also remove PMI, but only if you refinance into a new loan with 20 percent equity already built. Refinancing costs money in closing fees, so this only makes sense if you are also lowering your interest rate enough to offset those costs.

How PMI affects your total monthly payment

PMI is added directly to your mortgage payment each month. On a $300,000 loan at 1 percent AMIP, you are paying an extra $250 on top of your principal and interest. Over 12 years (the time it might take to reach 80 percent equity), that is $36,000 in PMI alone.

The real cost of PMI is not just the monthly amount — it is the opportunity cost. That $250 per month could go toward paying down principal faster, building equity sooner, or going into savings. PMI delays the point at which you own a meaningful stake in the home.

Your total housing payment includes four things: principal and interest, property taxes, homeowners insurance, and PMI (if applicable). PMI is usually the smallest of these, but it is the only one that goes away, so it is worth tracking.

Why lenders require PMI and what it means for you

Lenders require PMI because borrowers with smaller down payments default at higher rates. A person who puts down only 5 percent has less financial skin in the game, so they are statistically more likely to walk away if the home value drops or their circumstances change. PMI transfers that risk from the lender to an insurance company, and you pay the premium.

This is not a penalty for being a first-time buyer or having limited savings. It is a straightforward risk calculation. If you want to borrow with a smaller down payment, PMI is the cost of that choice. Some borrowers decide to save longer to avoid PMI; others decide the cost is worth buying sooner. Both are reasonable decisions.

PMI does not mean you are a risky borrower or that your loan will be treated differently. You make the same monthly payments, follow the same terms, and have the same rights as any other borrower. PMI is just an extra line item on your bill.

Strategies to avoid or minimize PMI

The clearest way to avoid PMI is to save a 20 percent down payment before you buy. On a $300,000 home, that is $60,000. If that timeline does not work for you, there are other paths.

Putting down 15 percent instead of 5 percent lowers your PMI cost significantly. The difference between a 5 percent and 15 percent down payment might be $100 to $150 per month in PMI savings, which adds up over time.

Piggyback loans (also called 80/10/10 loans) are a less common option: you take out a first mortgage for 80 percent of the purchase price and a second mortgage for 10 percent, and you put down 10 percent yourself. This avoids PMI because the first loan is at the 80 percent threshold. However, the second mortgage usually carries a higher interest rate, so the total cost may not be lower than PMI. Run the numbers with your lender before committing.

Improving your credit score before you explore can lower your PMI rate. A 50-point increase in your score might save you $30 to $50 per month in PMI. If you are not ready to buy when ready, spending a few months paying down debt and making on-time payments can pay off.

Frequently Asked Questions

Can I remove PMI before I reach 20 percent equity?

You can request removal once you reach 80 percent equity, which is the same as 20 percent down. Some lenders allow this after two years of payments; others require five. Automatic removal by law happens at 78 percent equity. Check your loan documents or call your lender to find out your specific timeline and what proof they need.

Does PMI go away if my home value increases?

Home appreciation can help you reach 80 percent equity faster on paper, but you still have to request removal and usually provide an appraisal. The lender will not automatically drop PMI just because your home is worth more. You have to ask, and you may have to pay for the appraisal yourself.

Is PMI tax-deductible?

PMI was tax-deductible for some borrowers in past years, but that deduction expired at the end of 2025 and is not currently available. Mortgage interest and property taxes remain deductible if you itemize, but PMI does not. Check with a tax professional about your specific situation.

What happens to PMI if I refinance?

If you refinance into a new loan, PMI on the old loan ends, but you may have to pay PMI on the new loan if your down payment (or equity) is still below 20 percent. Refinancing only removes PMI if you are refinancing into a loan where you have at least 20 percent equity. The closing costs of refinancing usually only make sense if you are also getting a better interest rate.

Why is my PMI higher than my neighbor's if we bought similar homes?

PMI depends on your credit score, your down payment size, your debt-to-income ratio, and the insurance company your lender uses. Even on the same home, two borrowers can pay different PMI amounts. Ask your lender to break down what factors drove your rate so you understand what you are paying for.