What Is PMI, and How Do You Avoid It?
Private mortgage insurance protects the lender, not you — and it can add hundreds a month. What PMI is, how much it costs, how to cancel it, and how to skip it.
The short version
- PMI is required on most conventional loans when you put down less than 20%.
- It protects the lender if you default — it does nothing for you — and adds roughly 0.5%–1.5% of the loan per year.
- You can request cancellation at 20% equity, and it drops automatically at 22%.
- Avoid it by putting 20% down, or weigh a piggyback loan or lender-paid PMI.
If you buy a home with less than 20% down, your lender will likely tack on private mortgage insurance — PMI. It’s one of the most misunderstood line items in a mortgage payment, partly because it protects the lender while you pay for it. Here’s exactly what it is, what it costs, and how to get rid of it.
What PMI actually is
PMI is insurance that reimburses your lender if you stop paying and they have to foreclose. It exists because a smaller down payment is riskier for the lender — so they pass the cost of that risk to you. It offers you no coverage or benefit; it simply lets you buy with less money down. On conventional loans it’s generally required whenever your down payment is under 20%.
What it costs
PMI typically runs about 0.5% to 1.5% of the loan amount per year, billed monthly. On a $300,000 loan, that’s roughly $125 to $375 a month on top of principal, interest, taxes, and insurance. Your rate depends on your credit score and down payment — the smaller the down payment and the lower the score, the higher the premium.
How to get rid of it
The good news: PMI isn’t forever. On conventional loans:
- At 20% equity (an 80% loan-to-value ratio), you can request that your lender cancel PMI.
- At 22% equity (78% LTV), the lender must remove it automatically.
- A rise in your home’s value or extra principal payments can get you there faster — an appraisal may be required to prove it.
FHA loans are different
FHA loans carry their own mortgage insurance (MIP) that often lasts the life of the loan regardless of equity. The only way off it is usually to refinance into a conventional loan once you have enough equity.
How to avoid it in the first place
- Put 20% down — the cleanest way to skip PMI entirely.
- Consider a piggyback (80-10-10) loan — a second loan covers part of the down payment so the first stays at 80% LTV, though the second loan has its own rate.
- Ask about lender-paid PMI — the lender covers it in exchange for a slightly higher interest rate, which can make sense if you’ll sell or refinance soon.
See PMI in your numbers
A home affordability calculator shows how your down payment affects the payment — and where 20% down removes PMI from the picture.
Paying a little extra each month builds equity faster — and gets you to the 20% mark, and out of PMI, sooner.
Sources
This article is for general education and is not financial, tax, or legal advice. Figures reflect published 2026 IRS and SSA amounts as of the date above; verify current limits with the linked sources or a qualified professional before acting.
About the author
David Miles is the founder of FigureMoney and builds independent, source-backed personal-finance tools across the Modern Site Builders network. Every calculator and guide cites the IRS, SSA, or primary research behind its numbers.
Calculators in this guide
Home Affordability Calculator
Find out how much house you can afford. Enter your income, debts, and down payment to see your target home price and monthly payment, using the 28/36 rule.
Mortgage Calculator
Free mortgage calculator. Estimate your monthly payment with principal, interest, taxes, insurance, and PMI, plus a full amortization schedule.
Mortgage Payoff Calculator
See how extra monthly payments shorten your mortgage and cut total interest. Enter your loan and an extra amount to find your new payoff date and interest saved.
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