When purchasing a residential property with a conventional loan, placing down less than 20% of the purchase price generally requires paying Private Mortgage Insurance (PMI). Understanding how PMI works can help you minimize long-term housing costs.
What Is PMI and Who Does It Protect?
PMI protects the mortgage lender—not the borrower—in case of loan default or foreclosure. The premium is typically added directly to your monthly mortgage bill until your home equity reaches 20% to 22%.
How Much Does PMI Cost?
Annual PMI costs typically range between 0.5% and 1.5% of the original loan balance each year, depending on your credit score and down payment percentage. For example, on a ,000 loan, an annual 0.75% PMI fee equates to approximately per month in additional costs.
How to Remove or Avoid PMI
- 20% Down Payment: Putting down 20% at the time of purchase eliminates PMI immediately.
- Automatic Cancellation: Under the Homeowners Protection Act, lenders must automatically terminate PMI once your loan balance reaches 78% of the original property value.
- Home Appreciation & Reappraisal: If your home value has increased significantly due to renovations or market growth, you can request a new appraisal to demonstrate 20%+ equity and cancel PMI early.
Estimate how different down payments impact your PMI using our Mortgage Payment Calculator.