PMI, Explained: When It Applies, What It Costs, and How to Remove It

Published 2026-11-08 · eLoanTree Blog

If you buy a home with less than 20% down on a conventional loan, you will probably see a line on your monthly statement called PMI. Many buyers pay it for years without really knowing what it is, why they are paying it, or — most importantly — how to stop paying it.

1. What PMI is

PMI stands for private mortgage insurance. It is insurance that protects the lender, not you. If a borrower defaults on a mortgage with a small down payment, the lender takes a bigger loss than it would on a loan with a large down payment, because there is less equity in the home to cushion it. PMI covers part of that loss for the lender.

That is the part people misunderstand most. You pay the premium, every month, but the policy protects the lender. It does not protect you if you lose your job, it does not pay your mortgage for you, and it does not cover damage to the home. It exists because the lender is taking more risk by lending you most of the purchase price.

2. When PMI applies

On a conventional loan — a loan that follows Fannie Mae and Freddie Mac guidelines and is not insured by a government agency — PMI is generally required when your down payment is less than 20% of the home's price. In other words, it applies when your loan-to-value ratio, or LTV, is above 80%.

LTV is simply the loan amount divided by the home's value. A $270,000 loan on a $300,000 home is a 90% LTV, so PMI would usually apply. A $240,000 loan on the same home is an 80% LTV, so PMI would usually not apply.

If you put down 20% or more, you generally avoid PMI entirely on a conventional loan. That is one of the main reasons buyers aim for 20% — but many buyers sensibly choose a smaller down payment and accept PMI for a while rather than waiting years to save 20%.

3. What PMI costs

PMI is charged as an annual rate on the loan amount, paid in monthly installments along with your mortgage payment. The typical range is about 0.3% to 1.5% of the original loan amount per year, according to Freddie Mac (cited in 2026 guides).

The exact rate depends mainly on your credit score and how much you put down: a higher credit score and a larger down payment generally mean a lower PMI rate.

A simple example makes the range concrete. On a $300,000 loan, a 0.5% annual PMI rate would cost about $1,500 a year, or about $125 a month. At 1.0%, it would be about $3,000 a year, or about $250 a month.

One variation is lender-paid PMI: the lender pays the premium and charges you a slightly higher rate instead. There is no separate PMI line, but you are still paying for it — and unlike borrower-paid PMI, it generally cannot be cancelled on request; you would usually need to refinance.

4. How to remove PMI on a conventional loan

This is the good news: unlike FHA mortgage insurance, conventional PMI is not forever. Federal law — the Homeowners Protection Act of 1998 — sets out how borrower-paid PMI ends. The rules use your original home value and your original payment schedule, not today's market value, unless you get a new appraisal. There are three milestones to know.

At 80% LTV: you can ask. When your loan balance is scheduled to reach 80% of the original value of the home, you can send your loan servicer a written request to cancel PMI.

The servicer must grant the request if you meet the conditions, which generally include being current on your payments, having a good payment history, and having no second mortgage that pushes your total debt above the limit. The servicer may also require an appraisal to confirm the home has not lost value.

At 78% LTV: it ends automatically. When your scheduled loan balance reaches 78% of the original value, the servicer must terminate PMI automatically, as long as you are current on your payments. You do not need to ask.

Note that this follows the original amortization schedule — making extra principal payments does not speed up the automatic date, though it can help you reach the 80% point sooner if you request cancellation.

At the loan midpoint: final termination. If PMI has not ended by then, it must end no later than the midpoint of the loan term — for a 30-year loan, that is the 15-year mark — provided you are current on payments.

The practical takeaway is simple: do not just wait for the automatic date. Mark the date your balance is scheduled to reach 80% of the original value, and send the written request then. Waiting for the 78% automatic date can cost you several more months of premiums.

5. How FHA MIP differs

FHA loans do not have PMI. They have MIP — mortgage insurance premium — and it works very differently.

First, FHA MIP has two parts: an upfront premium of 1.75% of the loan amount (HUD, 2026), which is usually financed into the loan rather than paid in cash, and an annual premium charged monthly for as long as the insurance lasts.

Second, FHA MIP is much harder to remove. On most 30-year FHA loans, if your down payment was less than 10%, the annual MIP lasts for the life of the loan — it does not drop off at 80% or 78% the way conventional PMI does. If your down payment was 10% or more, the annual MIP lasts for 11 years.

The main way to stop paying FHA MIP is usually to refinance into a conventional loan once you have enough equity and a credit profile that qualifies. That is a real cost of an FHA loan that belongs in any comparison with a conventional loan.

6. PMI vs FHA MIP at a glance

Sources: PMI typically costs about 0.3% to 1.5% of the original loan amount per year — Freddie Mac, as cited in 2026 guides. Cancellation at 80% LTV on request and automatic termination at 78% LTV — Homeowners Protection Act of 1998, as described by the Consumer Financial Protection Bureau (CFPB guidance, updated September 2026).

FHA upfront MIP 1.75%, annual MIP for the life of the loan if less than 10% down and 11 years if 10% or more down — HUD Handbook 4000.1 / HUD Mortgagee Letter 2023-05 (2026).

Educational only — eLoanTree is not a lender or broker and does not make loan decisions, guarantee rates or approval, or collect documents or SSNs.