Private mortgage insurance, or PMI, is insurance that protects your lender — not you — if you stop making mortgage payments. Lenders require PMI when your down payment is less than 20% of the home’s purchase price. It adds to your monthly housing cost and provides you zero direct benefit, which is why most borrowers want to eliminate it as quickly as possible.
How Much Does PMI Cost?
PMI typically costs between 0.5% and 1.5% of your loan amount per year, depending on your credit score, loan-to-value ratio, and lender. On a $400,000 loan, that’s $2,000 to $6,000 per year — or roughly $167 to $500 per month added to your mortgage payment.
The exact rate is determined when you close on your loan. Borrowers with higher credit scores and larger down payments pay less.
How PMI Works
PMI is usually added directly to your monthly mortgage payment. The lender collects it and pays the insurance premiums to the private mortgage insurance company. If you default on your loan, the insurer reimburses the lender for a portion of their loss. You, the borrower, receive nothing from this arrangement — it exists entirely to reduce the lender’s risk of lending to buyers with smaller down payments.
When Is PMI Required?
PMI is required on conventional loans when your loan-to-value (LTV) ratio exceeds 80% — meaning your down payment is less than 20%. Government-backed loans handle it differently:
- FHA loans: Require mortgage insurance premium (MIP) regardless of down payment. MIP lasts the life of the loan if you put less than 10% down, or 11 years if you put 10% or more down.
- VA loans: No mortgage insurance required. A funding fee is charged instead, but it’s a one-time cost, not ongoing monthly insurance.
- USDA loans: Charge a guarantee fee instead of PMI, similar to FHA.
How to Avoid PMI
Put 20% Down
The simplest way to avoid PMI is to save a 20% down payment before buying. On a $400,000 home, that’s $80,000. For many buyers, this takes years of saving, but it eliminates PMI entirely from day one.
Piggyback Loans (80-10-10)
A piggyback loan is a second mortgage taken simultaneously with the first, structured so your total LTV stays at or below 80%. The most common structure is 80-10-10: you put 10% down, take a first mortgage for 80%, and a second mortgage for the remaining 10%. This eliminates PMI but the second mortgage typically carries a higher interest rate than the first.
Lender-Paid PMI
Some lenders offer to pay your PMI in exchange for a slightly higher interest rate. This sounds appealing but often costs more over the long run — you can remove borrower-paid PMI once you hit 20% equity, but you can’t remove the rate increase from lender-paid PMI without refinancing.
How to Get Rid of PMI Once You Have It
Automatic Cancellation
Under the Homeowners Protection Act, lenders must automatically cancel PMI when your loan balance reaches 78% of the original purchase price — as long as you’re current on payments. This happens through your normal amortization schedule, whether you take extra steps or not.
Request Cancellation at 80% LTV
You can request PMI cancellation in writing once your loan balance drops to 80% of the original value. The lender may require an appraisal to confirm value, and you must be current on payments with a good payment history.
Refinance Your Mortgage
If your home has appreciated significantly, refinancing can reset your LTV based on the new appraised value. If your new loan is 80% or less of the current value, PMI won’t be required on the new loan. This strategy works best when interest rates are similar to or lower than your current rate.
Make Extra Payments
Paying down your principal faster accelerates the timeline to 80% LTV. Even an extra $100 to $200 per month can shave years off your PMI timeline and save thousands in insurance premiums.
Is PMI Tax Deductible?
PMI deductibility has come and gone as a tax law over the years. As of 2026, check with a tax advisor for the current status — it has not been a permanent part of the tax code and has required periodic congressional renewal.
Bottom Line
PMI is an unavoidable cost for most borrowers who put less than 20% down on a conventional loan. It typically runs $100 to $500 per month and provides no benefit to you as a borrower. Focus on building equity quickly — through home appreciation, extra payments, or a combination — and request PMI cancellation the moment you cross the 80% LTV threshold. Every month without PMI is money back in your pocket.