PMI Explained: How to Avoid, Calculate, and Cancel It
Private Mortgage Insurance (PMI) is the extra monthly fee you pay when your down payment is less than 20% of the home's purchase price. It protects the lender-not you-but it costs you $100-$400+ per month. Here's everything you need to know to minimize and eventually eliminate this cost.
What Is PMI?
When you buy a home with less than 20% down, the lender considers you a higher-risk borrower. PMI is an insurance policy that protects the lender in case you default on the mortgage. The borrower pays the premium, but receives zero benefit from the coverage-it's purely for the lender's protection.
The Cost
PMI typically costs between 0.5% and 1.5% of your total loan amount per year. On a $300,000 loan, that's $1,500 to $4,500 per year-or $125 to $375 per month added to your payment.
How PMI Is Calculated
Your PMI rate depends on several factors:
- Loan-to-Value (LTV) ratio: The less you put down, the higher your PMI rate.
- Credit score: Scores above 760 get the lowest PMI rates; below 680 pay significantly more.
- Loan type: Fixed-rate loans have lower PMI than adjustable-rate mortgages.
- Occupancy: Primary residences get lower PMI rates than investment properties.
5 Ways to Avoid PMI
- 1. Put 20% DownThe most straightforward method. No PMI is required if your LTV is 80% or below.
- 2. Piggyback Loan (80-10-10)Take out a second, smaller loan to cover part of the down payment. First mortgage stays at 80% LTV, eliminating PMI.
- 3. Lender-Paid PMI (LPMI)The lender pays PMI in exchange for a slightly higher interest rate. You don't have a separate PMI payment, but your rate is permanently higher.
- 4. VA Loan (Veterans)VA loans never require PMI, even with 0% down. Available to eligible veterans and active-duty military.
- 5. Negotiate a Higher Home AppraisalIf your home has appreciated significantly, a new appraisal showing 20%+ equity can eliminate PMI immediately.
How to Cancel PMI
The Homeowners Protection Act
Federal law requires your lender to automatically cancel PMI when your loan balance reaches 78% of the original home value. You can also request cancellation once you reach 80% LTV.
Steps to cancel PMI early:
- Check your amortization schedule to see when you'll hit 80% LTV based on regular payments.
- Make extra principal payments to reach 80% LTV faster.
- Request a new home appraisal if your home has appreciated-rising home values can push you past the 80% threshold sooner.
- Contact your lender in writing to formally request PMI removal once you meet the criteria.
FHA Loans: A Different Story
FHA Mortgage Insurance Premium (MIP) is not the same as conventional PMI. For FHA loans originated after June 2013 with less than 10% down, MIP lasts for the entire life of the loan. The only way to remove it is to refinance into a conventional mortgage.
Bottom Line
PMI is a necessary evil for many first-time buyers who can't afford a full 20% down payment. But it doesn't have to be permanent. Understand how it's calculated, know your cancellation rights, and use our calculator to plan your path to PMI-free homeownership.
See Your PMI Costs
Our mortgage calculator automatically calculates PMI based on your down payment and loan amount.
Calculate My PMIFinance & Mortgage Research Team
Based on CFPB, HUD, FHFA & Tax Foundation data
The USFinNexus editorial team researches and writes mortgage and personal finance guides using data sourced directly from the Consumer Financial Protection Bureau (CFPB), the U.S. Department of Housing and Urban Development (HUD), the Federal Housing Finance Agency (FHFA), and the Tax Foundation. All calculator formulas are reviewed for accuracy against official federal guidelines.
Last Updated: March 12, 2026
