Understanding PMI: What It Is, How Much It Costs & How to Avoid It

Private mortgage insurance (PMI) is an extra monthly cost lenders require when your down payment is less than 20%. It protects the lender -- not you -- if you default on the loan.

With 3.5% down, PMI ran from about 0.46% to 1.50% of the loan amount per year in August 2026, depending on your credit score (Enact rates published by the Urban Institute). On a $300,000 mortgage, that is about $115 to $375 per month. A larger down payment usually costs less: Freddie Mac puts typical PMI at about $30 to $70 a month for every $100,000 borrowed, or about $90 to $210 on $300,000. The good news: under the Homeowners Protection Act, your lender must cancel PMI once your loan balance reaches 78% of the original purchase price, and you can request removal at 80%.

Estimate Your Mortgage Payment with PMI →

Private mortgage insurance (PMI) is a type of insurance that protects the lender -- not you -- if you stop making mortgage payments. When you make a down payment of less than 20% on a conventional mortgage, the lender considers the loan higher risk because you have less equity in the home. PMI reduces that risk for the lender, which is why they require it.

Here is the key point many homebuyers miss: PMI does not protect you. If you default on your mortgage, the lender recovers some of their losses through the PMI policy, but you still face foreclosure and credit damage. PMI exists solely to make lenders willing to approve mortgages with smaller down payments.

Without PMI, most lenders would require 20% down on every loan, which would lock out millions of buyers. According to the National Association of Realtors' 2025 Profile of Home Buyers and Sellers, the typical first-time homebuyer put down 10% -- the highest first-time down payment since 1989, yet still only half of the 20% threshold that triggers PMI. PMI makes low-down-payment homeownership possible -- but at a cost you should understand and plan to eliminate.

PMI is arranged by your lender through a private insurance company (such as MGIC, Radian, Essent, or Enact, formerly Genworth Mortgage Insurance) when you close on your mortgage. The cost is based on several factors:

• Loan-to-value ratio (LTV): The ratio of your loan amount to the home's value. Higher LTV means higher PMI rates. A 95% LTV (5% down) costs more than 90% LTV (10% down).
• Credit score: Your credit score is the second biggest factor. At 3.5% down in August 2026, borrowers with scores of 760 and up paid 0.46% a year, less than half the 1.23%-1.50% charged for scores of 620-679 (Enact rates published by the Urban Institute).
• Loan amount: PMI is calculated as a percentage of the loan, so larger loans mean larger dollar amounts.
• Loan type and term: Fannie Mae requires less coverage on fixed-rate loans of 20 years or less than on longer loans and adjustable-rate mortgages, and less coverage generally means a lower premium.
• Coverage level: The insurer covers a set percentage of the lender's loss in a default. On a 30-year loan, Fannie Mae's standard coverage runs from 12% (at 80.01%-85% LTV) to 35% (at 95.01%-97% LTV); on fixed-rate loans of 20 years or less it runs from 6% to 35%.

How PMI Payments Work

In the most common arrangement (borrower-paid monthly PMI), your PMI premium is added to your monthly mortgage payment. Your lender collects it along with principal, interest, taxes, and insurance, then forwards it to the PMI company. You will see it as a separate line item on your mortgage statement.

For example, on a $300,000 loan with a PMI rate of 0.80% (close to the 0.79% the rate table below shows for scores of 700-719):

• Annual PMI cost: $300,000 x 0.80% = $2,400
• Monthly PMI cost: $2,400 / 12 = $200 per month

That $200 per month adds up to $2,400 per year -- money that builds zero equity in your home. On the $360,000, 6.5% loan in the removal example below, regular payments take about 95 months to reach 80% of the original value and about 109 months to reach the automatic 78% point, so $200 a month adds up to about $19,000-$21,800 before PMI ends.

Not all PMI works the same way. Depending on your financial situation, one type may save you significantly over another.

1. Borrower-Paid Monthly PMI (BPMI)

This is the most common type. You pay a monthly premium that is added to your mortgage payment. The main advantage is that you can cancel it once you reach 20% equity, either through payments or home appreciation.

• Pros: Cancellable, no large upfront cost, predictable monthly expense
• Cons: Increases your monthly payment, costs more over time if you keep the loan long-term
• Best for: Buyers who plan to stay in the home long enough to build 20% equity and cancel

2. Lender-Paid Mortgage Insurance (LPMI)

With LPMI, the lender pays the PMI premium in exchange for charging you a higher interest rate. How much higher varies by lender, so compare the rate with and without LPMI on your Loan Estimate. You will not see a separate PMI charge on your statement.

• Pros: No separate PMI payment, potentially lower total monthly payment, may improve DTI qualification
• Cons: Higher interest rate cannot be canceled (unlike BPMI), costs more over the full life of the loan
• Best for: Buyers who plan to sell or refinance within 5-7 years, or those who need a lower monthly payment to qualify

3. Single-Premium PMI (SPMI)

You pay the entire PMI cost as a lump sum at closing. This can either come from your own funds or be financed into the loan amount.

• Pros: No monthly PMI payment, lower total cost if you keep the loan a long time, can be negotiated into closing costs
• Cons: Large upfront cost that grows with the loan size, not refundable if you sell or refinance early
• Best for: Buyers with extra cash at closing who plan to stay in the home 7+ years

4. Split-Premium PMI

This is a hybrid: you pay a smaller upfront premium at closing (less than single-premium) plus a reduced monthly premium. It splits the cost between an upfront payment and ongoing monthly charges.

• Pros: Lower monthly payment than BPMI, lower upfront cost than SPMI, good middle ground
• Cons: Still requires upfront cash, partial upfront payment may not be refundable
• Best for: Buyers who want to reduce their monthly payment but cannot afford the full single premium

Each insurer now prices PMI through its own online rate engine, so no single rate card is published any more. The best dated public reference is the Urban Institute's monthly housing-finance chartbook, which prices a 3.5%-down conventional loan with Enact Mortgage Insurance's rates. Its latest table, with the cost turned into dollars on a $300,000 loan, is below. To turn a rate into a dollar figure for your own loan, see how PMI is calculated — it walks through the formula and worked examples step by step, and our mortgage calculator methodology page shows how that PMI figure folds into the full PITI payment.

Source: Urban Institute, Housing Finance at a Glance: A Monthly Chartbook, August 2026 (published August 31, 2026), “Initial Monthly Payment Comparison: FHA versus GSE with PMI”: Enact Mortgage Insurance rates as of August 20, 2026, for a 96.5% loan-to-value loan with the 25% coverage used by Fannie Mae HomeReady and Freddie Mac Home Possible. The dollar columns are our arithmetic, rounded to the nearest dollar. Checked September 2026.

With standard coverage, or with more down, the rate is different. A standard 97% loan-to-value loan carries 35% coverage rather than 25%, so it typically costs more than this table. A bigger down payment needs less coverage and so costs less: on a 30-year loan, Fannie Mae requires 30% coverage at 90.01%-95% LTV, 25% at 85.01%-90% and 12% at 80.01%-85% (Fannie Mae Selling Guide B7-1-02). Freddie Mac puts typical PMI at about $30 to $70 a month for every $100,000 borrowed. These are not quotes: your lender's Loan Estimate shows your own rate.

PMI is required in one specific scenario: when you take out a conventional mortgage with less than 20% down. Here is when you will and will not need it:

PMI Is Required When:

• Your down payment is less than 20% on a conventional (non-government) mortgage
• You are purchasing a home (not refinancing with 20%+ equity)
• The loan is a conforming conventional loan backed by Fannie Mae or Freddie Mac

PMI Is NOT Required When:

• Your down payment is 20% or more
• You have a VA loan (veterans and active-duty military -- though VA loans have a separate funding fee)
• You have a USDA loan (USDA loans have a guarantee fee instead)
• You have an FHA loan (FHA uses MIP, not PMI -- a different product with different rules)
• You choose lender-paid mortgage insurance (LPMI), where the cost is built into a higher interest rate

PMI does not have to be a permanent cost. Here are five strategies to avoid paying it altogether or eliminate it as quickly as possible.

1. Make a 20% Down Payment

The most straightforward way to avoid PMI is putting 20% down at purchase. On a $400,000 home, that means an $80,000 down payment. While this is a significant sum, it immediately eliminates PMI and gives you a lower monthly payment and more equity from day one.

Compare it with putting 10% down on the same home. That buyer borrows $360,000 and pays PMI on it: at Freddie Mac's typical $30 to $70 a month for every $100,000 borrowed, that is about $108-$252 per month, or $1,296-$3,024 per year. At 6.5%, regular payments take about 95 months to reach 80% of the original value, so putting 20% down avoids roughly $10,300-$23,900 of PMI.

2. Choose Lender-Paid Mortgage Insurance (LPMI)

With LPMI, you trade a higher interest rate for no separate PMI payment. This can work well if:

• You plan to sell or refinance before the higher rate costs more than PMI would have
• You need a lower monthly payment to qualify for the loan
• The rate increase your lender quotes is small relative to the PMI you would otherwise pay

Example (hypothetical rate increase): On a $300,000 loan, borrower-paid PMI at 0.60% (close to the 0.58% in the rate table for scores of 740-759) is $150/month. If LPMI raised your rate by 0.375 point, it would add about $75/month in interest (6.5% to 6.875% on a 30-year loan). You save about $75/month -- but the higher rate cannot be canceled.

3. Get a VA Loan (No PMI, No Down Payment)

If you are a veteran, active-duty service member, or eligible surviving spouse, a VA loan is often the best mortgage option available. VA loans require no down payment and no PMI. There is a one-time VA funding fee (typically 1.25%-3.3% of the loan), but it can be rolled into the loan and is waived entirely for veterans with service-connected disabilities.

VA loans also tend to carry lower interest rates than conventional loans: in 2023 mortgage data, the median VA purchase loan rate was 6.250% against 6.625% for conventional conforming loans (CFPB, December 2024). VA sets no hard debt-to-income cap: its 41% ratio is a guide, weighed alongside residual income (38 CFR 36.4340), though most lenders apply their own limit.

4. Use a Piggyback Loan (80/10/10)

A piggyback loan structure combines two mortgages to avoid PMI. The most common arrangement is "80/10/10":

• First mortgage: 80% of the home's value (no PMI required)
• Second mortgage (home equity loan or HELOC): 10% of the home's value
• Down payment: 10% cash

The second mortgage typically carries a higher interest rate than the first: the average home equity loan rate was 8.39%-8.49% on September 23, 2026 (Bankrate, used here as a dated example). For comparison, Freddie Mac publishes the national 30-year fixed average every week. The most recent figure when this page was built:

As of October 8, 2026, the average 30-year fixed mortgage rate was 7.40%. Source: Freddie Mac, 30-Year Fixed Rate Mortgage Average in the United States [MORTGAGE30US], retrieved from FRED, Federal Reserve Bank of St. Louis (opens in new tab).

Even with the higher second-mortgage rate, the combined cost may be less than paying PMI. Other common structures include 80/15/5 (5% down) and 80/5/15 (15% down).

5. Request PMI Removal at 80% LTV

If you already have PMI, the Homeowners Protection Act of 1998 (HPA) gives you specific rights to cancel it:

Borrower-Requested Cancellation (80% LTV)

You can request PMI removal when your loan balance reaches 80% of the original purchase price. To qualify:

• You must submit a written request to your loan servicer
• You must have a good payment history: no payment 30 or more days late in the last 12 months, and none 60 or more days late in the 12 months before that
• You may need to pay for an appraisal to verify the home has not declined in value
• There must be no subordinate liens (such as a home equity loan) on the property

Automatic Termination (78% LTV)

Your lender is legally required to cancel PMI when your loan balance reaches 78% of the original purchase price, based on your original amortization schedule. This happens automatically -- you do not need to request it.

Midpoint Cancellation

Even if you have not reached 78% or 80% LTV, the HPA requires lenders to cancel PMI at the midpoint of your loan term. For a 30-year mortgage, that is after 15 years, regardless of your remaining balance.

Cancellation Based on Home Appreciation

If your home has appreciated significantly, you may be able to request PMI removal based on the current appraised value rather than the original purchase price. Requirements vary by lender and investor (Fannie Mae vs. Freddie Mac). For a one-unit home owned by Fannie Mae, for example (Servicing Guide B-8.1-04):

• If your loan is 2-5 years old: you need 25% equity based on current value (a loan-to-value ratio of 75% or less)
• If your loan is more than 5 years old: you need 20% equity based on current value (80% or less)

PMI Removal Timeline Example

Suppose you bought a $400,000 home with 10% down ($40,000) and a $360,000 loan at 6.5%:

• Original purchase price: $400,000
• 80% of original price: $320,000 (your target balance for PMI removal request)
• Time to reach $320,000 balance: Approximately 7-8 years through regular payments
• PMI cost during that time: Roughly $200/month x 95 months = $19,000 in total PMI
• With extra payments of $200/month: You could reach $320,000 in about 5 years (64 months), saving roughly $6,200 in PMI

Calculate Your PMI Removal Timeline →

Many homebuyers confuse PMI with FHA mortgage insurance. While both are forms of mortgage insurance, they have important differences that affect your long-term costs.

*FHA MIP drops off after 11 years for borrowers who put 10% or more down. For those with less than 10% down, MIP lasts the life of the loan.

Which Is Cheaper: PMI or MIP?

The answer depends on your credit score and how long you keep the loan. The Urban Institute compares the two every month for a $400,000 home bought with 3.5% down; in its August 2026 chartbook (rates as of August 20, 2026), the FHA loan's first monthly payment was lower in every credit band, by $1 at 760+ and by $336 at 620-639, partly because FHA's base rate was lower (6.6% vs. 6.9%). Monthly cost is only half the comparison:

• If your credit score is 740+: The two are close. Conventional PMI ran 0.46%-0.58% against FHA's 0.55%, and conventional PMI can be canceled at 80% LTV while FHA's usually cannot, so conventional often costs less over the life of the loan.
• If your credit score is 680-739: Conventional PMI ran 0.70%-0.98%, above FHA's flat 0.55%. FHA's 1.75% upfront premium and its lifetime MIP (with less than 10% down) can still tip the balance toward conventional if you keep the loan long enough to cancel PMI.
• If your credit score is below 680: FHA was clearly cheaper month to month: conventional PMI ran 1.23%-1.50% against 0.55%. However, FHA's lifetime MIP can still make the total cost higher if you stay long-term.

The Homeowners Protection Act (HPA), also known as the PMI Cancellation Act, is a federal law that establishes your rights regarding PMI on residential mortgage transactions. Understanding these rights ensures your lender does not continue charging PMI longer than legally required.

Key Provisions of the HPA

• Right to request cancellation at 80% LTV: Borrowers can request PMI cancellation when the principal balance reaches 80% of the original value, provided they have a good payment history and the property has not declined in value.
• Automatic termination at 78% LTV: Lenders must automatically terminate PMI when the mortgage balance is first scheduled to reach 78% of the original value, based on the initial amortization schedule.
• Final termination at midpoint: If PMI has not been canceled or terminated by the midpoint of the amortization period (year 15 of a 30-year loan), the lender must cancel it regardless of the outstanding balance.
• Disclosure requirements: At closing, lenders must provide written notice explaining when PMI may be canceled and terminated. They must also provide annual reminders of your cancellation rights.
• Refund of unearned premiums: When PMI is canceled, the lender must refund any unearned premiums within 45 days.

If you cannot avoid PMI entirely, these strategies can help minimize what you pay:

1. Improve Your Credit Score Before Applying

At 3.5% down in August 2026, moving from the 680-699 band (0.98%) to 740-759 (0.58%) cut the PMI rate by about 40%. Even a 20-point improvement can move you to a lower pricing tier. Focus on paying down credit card balances, correcting errors on your credit report, and avoiding new credit inquiries for 6-12 months before applying.

2. Increase Your Down Payment

A larger down payment lowers the loan-to-value ratio, and a lower ratio needs less insurance coverage. On a 30-year loan, Fannie Mae's standard coverage steps down from 35% (95.01%-97% LTV) to 30% (90.01%-95%), 25% (85.01%-90%) and 12% (80.01%-85%), and less coverage usually means a lower premium. If you are just above one of those thresholds (5%, 10% or 15% down), a slightly larger down payment may be worth checking with your lender.

3. Shop Multiple PMI Providers

Your lender typically chooses the PMI provider, but you can ask them to quote rates from multiple companies. MGIC, Radian, Essent, Enact, and National MI may have different rates for your specific profile.

4. Consider a 15-Year Mortgage

PMI rates for 15-year mortgages are generally lower than for 30-year loans because the shorter term means the lender's risk period is shorter, and Fannie Mae requires less coverage on fixed-rate loans of 20 years or less (for example 12% instead of 25% at 85.01%-90% LTV). Combined with faster equity building, a 15-year term significantly reduces your total PMI cost.

5. Make Extra Principal Payments

Extra payments toward principal accelerate how quickly you reach 80% LTV. On the $360,000, 6.5% loan in the removal example above, an extra $100 per month reaches 80% of the original value about 18 months sooner, and an extra $200 about 31 months sooner -- roughly 1.5 to 2.6 years off your PMI timeline.

6. Monitor Home Values for Early Cancellation

If home values in your area have risen significantly, you may qualify for early PMI removal based on current appraised value rather than the original purchase price. Track local market data and request a new appraisal when you believe you have 20-25% equity.

7. Choose the Right PMI Type

Compare the total cost of borrower-paid monthly, single-premium, and lender-paid options. A single-premium PMI might save you thousands if you plan to keep the loan 10+ years, while LPMI may be cheaper if you plan to move within 5 years.

Use our free Mortgage Calculator to estimate your total monthly payment including principal, interest, taxes, insurance, and PMI. See exactly how much PMI adds to your payment and when you can expect to have it removed.

See How Much House You Can Afford →

• Consumer Financial Protection Bureau -- What Is Private Mortgage Insurance?(opens in new tab)
• Homeowners Protection Act of 1998 (Public Law 105-216)(opens in new tab)
• Fannie Mae Servicing Guide -- Mortgage Insurance Cancellation(opens in new tab)
• Freddie Mac -- Breaking Down PMI(opens in new tab) -- about $30 to $70 a month for every $100,000 borrowed (checked September 2026)
• Urban Institute -- Housing Finance at a Glance: A Monthly Chartbook, August 2026(opens in new tab) -- PMI rates by credit score at 96.5% LTV (Enact Mortgage Insurance, rates as of August 20, 2026) and the FHA vs. PMI payment comparison (published August 31, 2026)
• Fannie Mae Selling Guide B7-1-02 -- Mortgage Insurance Coverage Requirements(opens in new tab) -- standard and HomeReady coverage by LTV and term (checked September 2026)
• CFPB -- 2023 Mortgage Market Activity and Trends (December 2024)(opens in new tab) -- median interest rates by loan type (VA 6.250%, conventional conforming 6.625%)
• 38 CFR 36.4340 -- VA underwriting standards (debt-to-income ratio and residual income)(opens in new tab)
• Bankrate -- Home Equity Loan Rates(opens in new tab) (8.39%-8.49%, September 23, 2026) and Freddie Mac -- Primary Mortgage Market Survey(opens in new tab) (weekly national 30-year average, shown on this page from the live series)
• 12 U.S.C. 4901 -- Homeowners Protection Act definitions, including "good payment history"(opens in new tab)
• National Association of REALTORS -- Profile of Home Buyers and Sellers (2025)(opens in new tab)
• U.S. Department of Housing and Urban Development -- FHA Mortgage Insurance(opens in new tab)
• MGIC Premium Plans (quotes through the MiQ rate engine)(opens in new tab)
• Experian - How Much Does PMI Cost?(opens in new tab) -- 0.46% to 1.50% a year, citing the Urban Institute (May 2026)
• CFPB - When can I remove PMI from my loan?(opens in new tab) -- 80%, 78% and midpoint rules; loans closed on or after July 29, 1999 (last reviewed August 28, 2026)
• Public Law 119-21 (H.R. 1), section 70108(opens in new tab) -- mortgage insurance premiums treated as qualified residence interest from 2026, with the $100,000 AGI phase-out (checked September 2026)
• U.S. Department of Veterans Affairs -- Home Loans(opens in new tab)

Disclaimer: This content is for educational and informational purposes only and does not constitute financial, tax, or legal advice. Individual circumstances vary, and you should consult with a qualified mortgage professional before making home buying decisions. While we strive for accuracy, interest rates, PMI rates, and lending guidelines change frequently. Not financial advice. Data current as of September 2026.

Content reviewed by Mark at Markco Labs. Learn more about our accuracy standards.