What Is Private Mortgage Insurance and How Do You Get Rid of It

Private mortgage insurance is one of the most misunderstood costs in a home purchase.

Most buyers hear the term, nod along, and do not realize until after closing that they are paying an extra $100 to $300 or more every month for something that protects the lender, not them.

🛡️ What Private Mortgage Insurance Is

Private mortgage insurance is a policy that protects the lender if the borrower stops making payments and the home goes into foreclosure.

When a lender sells a foreclosed home, they do not always recover the full loan balance.

PMI covers part of that potential loss.

• The borrower pays the premium.
• The lender receives the protection.

That is the arrangement, and it exists specifically because a buyer putting down less than 20% has less equity in the home from the start, which represents more risk for the lender.

PMI has nothing to do with homeowners insurance, which protects the borrower’s property.

They are two separate costs that often get confused because both appear as part of the monthly housing payment.

When Private Mortgage Insurance Is Required

On a conventional loan, PMI is required when the down payment is less than 20% of the purchase price.

The loan-to-value ratio at closing determines whether PMI applies.

Common scenarios where PMI applies on a conventional loan:

• 3% down payment = PMI required
• 5% down payment = PMI required
• 10% down payment = PMI required
• 15% down payment = PMI required
• 20% down payment = PMI not required

FHA loans have their own mortgage insurance structure that works differently from conventional PMI.

FHA requires both an upfront premium and a monthly premium regardless of down payment size, and for most FHA loans the monthly premium stays for the life of the loan.

VA loans do not require any mortgage insurance. USDA loans have their own guarantee fee structure.

This blog focuses on conventional PMI, which most buyers with less than 20% down will encounter.

💸 How Much Private Mortgage Insurance Costs

PMI is not a flat fee.

The cost depends on several factors specific to the loan and the borrower:

• Loan amount
• Down payment size and resulting loan-to-value ratio
• Credit score
• Loan term
• Whether the rate is fixed or adjustable
• The PMI provider the lender uses

For most borrowers, PMI runs between 0.5% and 1.5% of the original loan amount per year, divided into monthly installments.

On a $350,000 loan, that range works out to roughly $145 to $438 per month.

• A borrower with a stronger credit score and a larger down payment will typically land at the lower end of that range.
• A borrower with a lower score and a minimum down payment will land higher.

The PMI rate is set at closing and doesn’t change with market conditions, though it will be recalculated if the loan is refinanced.

How PMI Appears on the Monthly Payment

PMI is added to the monthly mortgage payment and collected by the lender along with principal, interest, taxes, and insurance.

It shows as a separate line item on the mortgage statement.

Buyers sometimes confuse PMI with the property tax or homeowners insurance portion of the payment because these costs are bundled into one monthly number.

Reviewing the loan estimate and closing disclosure carefully before closing shows exactly how much PMI will add to the monthly payment.

📋 How to Remove Private Mortgage Insurance

PMI does not last forever on a conventional loan.

Federal law under the Homeowners Protection Act gives borrowers specific rights to request and receive PMI cancellation under defined conditions.

There are three main paths to removing PMI on a conventional loan:

Automatic termination

When the loan balance reaches 78% of the original purchase price based on the scheduled payment timeline, the lender must automatically cancel PMI.

This happens automatically, as long as the loan is current.

The key word is original purchase price.

Automatic termination is based on the amortization schedule, not the home’s current market value.

Borrower-requested cancellation

When the loan balance reaches 80% of the original purchase price, the borrower can request PMI cancellation in writing.

The lender may require:

• Proof that the loan is current with no 30-day late payments in the past 12 months
• Confirmation that no 60-day late payments occurred in the past 24 months
• A good payment history on the loan overall
• Potentially a new appraisal to confirm the property value has not declined

Requesting cancellation at 80% loan-to-value rather than waiting for automatic termination at 78% can save several months of PMI payments.

Appraisal-based cancellation

When home values have increased since the original purchase, a borrower may be able to request PMI cancellation earlier based on the current appraised value rather than the original purchase price.

Most conventional lenders allow this after the loan has been open for at least two years.

If the new appraised value shows the loan balance is at or below 80% of the current value, you may be eligible to remove PMI even if the original amortization schedule has not reached that point yet.

This path requires a formal appraisal ordered through the lender, which typically costs a few hundred dollars.

When PMI is running $200 or more per month, one appraisal can pay for itself quickly.

Factors That Affect How Fast PMI Goes Away

Several factors determine how quickly a borrower reaches the threshold to remove PMI:

• Original down payment size: a larger down payment means a lower starting loan-to-value ratio and a shorter path to 80%.
• Making extra principal payments: additional payments beyond the required monthly amount accelerate the paydown and can reach the 80% threshold faster.
• Home value appreciation: rising values can push the loan-to-value ratio below 80% based on current market value, opening the door to appraisal-based cancellation.
• Loan term: a 15-year loan pays down principal faster than a 30-year loan, reaching the cancellation threshold sooner.

In North Texas markets like Dallas, Frisco, McKinney, and Prosper, home values have appreciated significantly over recent years.

Buyers who purchased several years ago may already be at or below the 80% loan-to-value threshold based on current value, even if the original amortization schedule has not reached that point.

❌ Strategies to Avoid or Reduce PMI

Some buyers choose strategies specifically designed to minimize or eliminate PMI from the start.

Put 20% down

The most straightforward approach.

A 20% down payment eliminates PMI entirely.

The trade-off is that a larger down payment requires more upfront cash, which may take longer to save or leave less available for other financial goals.

Piggyback loan

A piggyback loan is a second mortgage taken out at the same time as the first to avoid PMI.

The most common structure is an 80-10-10, where the first mortgage covers 80% of the purchase price, a second mortgage covers 10%, and the buyer puts 10% down.

Because the first mortgage stays at 80% loan-to-value, PMI is not required.

Piggyback loans come with their own interest rate and monthly payment, and the second mortgage rate is typically higher than the first.

Whether a piggyback saves money compared to simply paying PMI depends on the specific rates, loan amounts, and how long the buyer plans to keep the loan.

Lender-paid PMI

Some lenders offer to cover the PMI premium in exchange for a slightly higher interest rate on the loan.

The buyer avoids the separate PMI line item but pays a higher rate for the life of the loan, or until they refinance.

Lender-paid PMI can make sense when the buyer plans to sell or refinance within a few years.

Over a longer holding period, a higher rate can cost more than the PMI would have.

Single-premium PMI

Instead of paying PMI monthly, some programs allow the buyer to pay the full PMI cost as a one-time upfront premium at closing.

This eliminates the monthly obligation but requires more cash at closing.

Single-premium PMI can sometimes be financed into the loan.

PMI vs FHA Mortgage Insurance

Buyers comparing conventional loans with PMI against FHA loans often focus on the down payment without fully accounting for the mortgage insurance difference.

Conventional PMI can be removed once the loan-to-value ratio reaches 80% based on appraised value or original purchase price.

FHA monthly mortgage insurance stays for the life of the loan for most borrowers who put down less than 10%.

For a buyer who plans to stay in the home long term and build equity, a conventional loan with PMI may cost less in lifetime mortgage insurance than an FHA loan, even if the FHA rate looks lower initially.

Running both scenarios with a full payment comparison over the expected holding period gives a more accurate picture than comparing the initial monthly payment alone.

PMI is the cost of accessing a home sooner with less cash upfront. Whether that trade makes sense depends on your market, your timeline, and what else you would do with that money.” — Wade Betz, Winning With Wade | Mortgage Education and Strategy

✅ Steps to Take If You Think PMI Can Be Removed

If enough time has passed or the home has appreciated, removing PMI sooner rather than later is worth pursuing.

Before contacting the lender:

• Pull the most recent mortgage statement and note the current loan balance
• Identify the original purchase price and calculate what 80% of that amount is
• Check whether the current balance is at or below that 80% threshold
• Research recent comparable sales in the neighborhood to estimate current home value
• Determine whether the loan has been open long enough for appraisal-based cancellation

When contacting the lender:

• Request the specific process for PMI cancellation in writing
• Ask whether an appraisal will be required and what the cost is
• Confirm what payment history documentation is needed
• Submit the written cancellation request and follow up until confirmation is received

Private Mortgage Insurance Checklist

Before closing:

• Confirm whether PMI is required based on the down payment and loan-to-value ratio
• Review the PMI cost on the loan estimate and closing disclosure
• Ask the lender about alternatives, including lender-paid PMI or a piggyback loan
• Understand at what loan balance PMI can be requested for cancellation

After closing:

• Track the loan balance and note when it reaches 80% of the original purchase price.
• Submit a written cancellation request once you reach the 80% threshold.
• Ask the lender about appraisal-based cancellation if the home has appreciated.
• Review the mortgage statement annually to confirm PMI is still being charged and that removal has not already been triggered automatically.

📣 Frequently Asked Questions (FAQs)

What is private mortgage insurance and who does it protect?

Private mortgage insurance protects the lender, not the borrower, if the loan goes into default. The borrower pays the premium as part of the monthly mortgage payment.

When is PMI required on a conventional loan?

PMI is required on conventional loans when the down payment is less than 20% of the purchase price, resulting in a loan-to-value ratio above 80%.

How much does PMI cost each month?

PMI typically costs between 0.5% and 1.5% of the original loan amount per year, divided into monthly installments. The exact rate depends on the loan amount, down payment, credit score, and PMI provider.

How do I get rid of PMI on a conventional loan?

You can remove PMI by requesting cancellation in writing when the loan balance reaches 80% of the original purchase price, waiting for automatic termination at 78%, or requesting appraisal-based cancellation if the home has appreciated enough to bring the loan-to-value below 80% of its current value.

Can PMI be removed based on the home’s current value?

Yes. Most conventional lenders allow appraisal-based PMI cancellation after the loan has been open for at least two years, when a new appraisal shows the loan balance is at or below 80% of the current appraised value.

Is FHA mortgage insurance the same as PMI?

FHA mortgage insurance and conventional PMI both add to the monthly payment, but they work differently. FHA requires both an upfront premium and a monthly premium, and for most FHA borrowers, the monthly premium stays for the life of the loan. Conventional PMI can be removed once you build enough equity.

Can PMI be avoided without a 20% down payment?

Yes. Options include piggyback loans, lender-paid PMI at a higher interest rate, and single-premium PMI paid upfront at closing. Each option has trade-offs that depend on the loan amount, rate, and how long the buyer plans to keep the loan.

About the Author

Wade Betz

Mortgage Broker at Winning WIth Wade · NMLS #280613

Wade has been a stalwart in the mortgage industry since 2006, dedicating himself to helping thousands of families navigate the complexities of home financing. With so much experience, he stands out as a leading mortgage originator in the Dallas-Fort Worth area.

Specializes in: DSCR Loans, VA Loans, Reverse Mortgages

Licensed in: AL, AZ, AR, CA, CO, CT, FL, GA, ID, IL, IN, KS, LA, MD, MI, MS, MT, NE, NJ, NM, NC, OH, OK, OR, PA, SC, TN, TX, VA, WA, WI

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