If you’re buying a home with less than 20% down, you’ve probably run into three letters that add to your monthly payment: PMI. It’s one of the most misunderstood costs in a mortgage — and one of the most avoidable, once you understand how it works. Here’s a clear, 2026 explanation of what PMI is, what it costs, and exactly how to get rid of it.
What PMI Is — and Who It Actually Protects
PMI stands for private mortgage insurance. Here’s the part that surprises most people: it protects your lender, not you. When you put down less than 20% on a conventional loan, the lender takes on more risk — if you default and they have to foreclose, a smaller down payment means a higher chance the sale won’t cover the loan balance. PMI is an insurance policy that covers the lender for that gap.
So you’re paying a premium that protects someone else. That sounds unfair until you see the flip side: PMI is what makes it possible to buy a home without waiting years to save a full 20% down payment. It’s less a penalty than a trade — it lets you buy sooner.
When PMI Is Required
PMI is tied to conventional loans with a down payment under 20%. Put down 20% or more, and you avoid it entirely. Put down less — whether that’s 3%, 5%, or 15% — and your lender will require PMI until you build enough equity.
One important distinction: PMI applies to conventional loans. FHA loans have their own separate mortgage insurance (called MIP) that works very differently — more on that below, because the difference is a big deal.
What PMI Costs in 2026
PMI typically costs between 0.3% and 1.5% of your loan amount per year — which on a $300,000 loan works out to roughly $75 to $375 a month. That’s a wide range, and where you land depends mostly on two things:
- Your credit score — the higher your score, the lower your PMI rate. A 760+ score can put you at the bottom of the range; a score in the 640s pushes you toward the top.
- Your down payment — the more you put down (even if it’s under 20%), the lower your loan-to-value ratio and the lower your PMI.
For example, on a $400,000 home with 5% down, a borrower with excellent credit might pay around $95–$160 a month, while a borrower with fair credit could pay $270–$400 for the same loan. Credit score alone can swing your PMI by hundreds of dollars a month — which is why improving your score before you apply pays off directly.
How to Remove PMI — The Two Key Thresholds
Here’s the good news that many homeowners don’t realize: PMI is temporary, and federal law gives you the right to cancel it. The Homeowners Protection Act sets two thresholds you need to know:
80% LTV — your right to request cancellation. Once your loan balance drops to 80% of the home’s value (meaning you’ve built 20% equity), you can request that your servicer cancel PMI. This can be based on your original purchase price, or — if your home has appreciated — a current appraisal. You have to ask; it isn’t automatic at this stage.
78% LTV — automatic termination. Once your loan balance reaches 78% of the original value (22% equity), your servicer is required by law to cancel PMI automatically, as long as you’re current on payments. This happens on its own, based on your original amortization schedule.
The practical move: don’t wait for the automatic 78% cutoff. Watch your balance, and the moment you hit 80% — or your home appreciates enough — contact your servicer and request cancellation. Waiting the extra time to 78% can cost you hundreds in unnecessary premiums.
Three Ways to Get Rid of PMI Faster
You don’t have to just wait for the balance to drop on schedule. Three strategies speed it up:
- Make extra principal payments. Paying down your balance faster gets you to the 80% threshold sooner, letting you request cancellation earlier.
- Request a new appraisal after your home appreciates. If home values in your area have risen, a fresh appraisal can show you’ve reached 20% equity based on current value — even if your loan balance hasn’t dropped that far. (Note: many lenders require you to have owned the home about two years before allowing an appreciation-based removal.)
- Refinance. If your equity has grown past 20%, refinancing into a new conventional loan removes PMI entirely on the new loan — and if rates have improved, you may lower your payment at the same time.
PMI vs. FHA Mortgage Insurance — a Critical Difference
This is where a lot of buyers get caught, so it’s worth being clear. Conventional PMI goes away — you cancel it at 20% equity, or it terminates automatically at 22%. FHA mortgage insurance often does not. On most FHA loans originated today with the minimum down payment, the mortgage insurance premium lasts the life of the loan, and the only way to remove it is to refinance out of the FHA loan into a conventional one.
That difference matters enormously when you’re choosing between an FHA and a conventional loan. An FHA loan may be easier to qualify for, but if you can qualify conventionally, the cancellable PMI can save you thousands over the years. This is exactly the kind of trade-off worth walking through with a broker before you choose a program.
Frequently Ask Questions About PMI insurance
- What is PMI insurance? PMI (private mortgage insurance) is a premium conventional lenders require when you put down less than 20% on a home. It protects the lender — not you — if you default. It typically costs 0.3% to 1.5% of your loan amount per year and can be cancelled once you build 20% equity.
- How much does PMI cost? PMI usually runs 0.3% to 1.5% of your loan amount annually — roughly $75 to $375 a month on a $300,000 loan. Your exact cost depends mostly on your credit score and down payment; higher credit and a larger down payment both lower your PMI.
- When can I cancel PMI? You can request cancellation once you reach 20% equity (80% loan-to-value), and your servicer must cancel it automatically at 22% equity (78% LTV) under federal law, as long as you’re current on payments. Don’t wait for the automatic point — request it as soon as you hit 20%.
- How do I get rid of PMI faster? Three ways: make extra principal payments to reach 20% equity sooner, request a new appraisal if your home has appreciated, or refinance into a conventional loan once your equity exceeds 20%. Each can remove PMI ahead of the automatic schedule.
- Is PMI the same as FHA mortgage insurance? No. Conventional PMI can be cancelled at 20% equity. FHA mortgage insurance is different — on most FHA loans it lasts the life of the loan, and the only way to remove it is to refinance into a conventional loan. That’s a key reason to compare FHA and conventional options carefully.
