Private Mortgage Insurance (PMI): What It Costs, How to Remove It, and When to Avoid It
Private mortgage insurance is required on conventional loans when you put less than 20% down. PMI protects the lender — not you — against default risk. It costs 0.2%–1.5% of the loan amount annually, depending on your credit score and loan-to-value ratio, and is paid monthly as part of your mortgage payment.
The critical advantage of conventional PMI over FHA MIP: PMI cancels. Once you reach 80% LTV, you can request removal. At 78% LTV, it cancels automatically. This single feature makes conventional the cheaper long-term choice for most borrowers above 700 credit, even though the initial PMI payment may be higher than FHA MIP.
PMI Cost Factors
- Credit score: The biggest variable — 740+ pays 0.2–0.4% annually; 620 pays 1.0–1.5%
- LTV ratio: More down payment = lower PMI. Each 5% increment above 5% down reduces the rate
- Loan amount: PMI is a percentage of the loan, so larger loans mean higher dollar amounts
- Coverage level: Standard 30% coverage for most LTVs; higher coverage required above 95% LTV
How to Remove PMI
- Request at 80% LTV: Contact your servicer when your balance reaches 80% of original value
- Auto-cancel at 78%: Servicer must remove PMI when balance reaches 78% of original value
- New appraisal: If your home appreciated, order an appraisal proving 80%+ equity for early removal
- Midpoint termination: PMI must terminate at the halfway point of the loan term regardless of LTV
PMI vs FHA MIP
- PMI cancels: Removed at 80% LTV — FHA MIP stays for the life of the loan (<10% down)
- PMI varies by credit: Low-credit borrowers pay high PMI — FHA MIP is flat regardless of credit
- No upfront on PMI: Conventional has no upfront premium — FHA charges 1.75% upfront MIP
- Crossover point: Above 700 credit, PMI is cheaper. Below 680, FHA MIP is often cheaper monthly
Ways to Avoid PMI
- 20% down: The straightforward path — no PMI from day one
- Piggyback loan: 80/10/10 structure uses a second mortgage to avoid PMI with 10% down
- Lender-paid PMI: Lender covers PMI in exchange for a higher rate — you cannot cancel this later
- VA loan: Zero PMI regardless of down payment — the best option for eligible veterans
How much does PMI cost per month?
On a $350,000 loan at 5% down with 740+ credit, PMI runs approximately $70–$115/month (0.25–0.40% annually). With 660 credit at the same LTV, PMI jumps to $230–$380/month (0.80–1.30%). Credit score is the biggest cost driver — more than LTV or loan amount.
When does PMI go away?
You can request removal at 80% LTV based on the original purchase price. It automatically cancels at 78% LTV. If your home has appreciated, a new appraisal can prove 80%+ equity for early removal. On a 30-year loan with 5% down, auto-cancellation typically happens around year 9–11 depending on rate.
Is PMI tax deductible?
The PMI tax deduction has been extended and expired multiple times. Check current IRS guidance for the applicable tax year. When available, the deduction phases out for borrowers with AGI above $100,000. Consult a tax professional for your specific situation.
The Bottom Line Up Front
PMI is the cost of borrowing with less than 20% down on a conventional loan — and it cancels, which is the whole point. A 740+ borrower at 10% down pays roughly $80/month in PMI on a $350K loan. A 640 borrower pays $350/month. That spread means PMI is cheap for high-credit borrowers and expensive for low-credit borrowers, which is exactly why credit score determines whether conventional or FHA loans is the cheaper program at your tier.
How PMI Works and What It Costs
PMI is a monthly premium paid by the borrower to an insurance company that protects the lender if you default. The cost is expressed as an annual percentage of the loan amount and paid in monthly installments as part of your mortgage payment.
The rate is set at origination based on your credit score, LTV, and the coverage level required. It does not change during the life of the PMI — if you got 0.35% PMI at origination, that is your rate until PMI is removed. As your loan balance decreases, the dollar amount drops slightly each month because the percentage applies to the declining balance.
Deal Math
On a $400,000 loan at 5% down, a 740-credit borrower pays roughly $1,200/year in PMI ($100/month). A 640-credit borrower pays roughly $5,200/year ($433/month). That is a $333/month difference for the same loan amount and LTV — driven entirely by credit score. Improving from 640 to 740 before buying saves more on PMI than any other mortgage optimization.
How to Remove PMI: Three Paths
PMI removal is governed by the Homeowners Protection Act (HPA). You have three paths: borrower-requested cancellation, automatic termination, and appraisal-based early removal.
Borrower-requested cancellation at 80% LTV is the fastest voluntary path. Contact your servicer in writing, confirm your payment history is current with no 30-day lates in the past 12 months, and the servicer must cancel PMI. Automatic termination at 78% LTV requires no action — the servicer removes PMI on the date the balance is scheduled to reach 78% based on the original amortization schedule.
PMI Removal Requirements
- 80% LTV request: Written request to servicer + current on payments + no 30-day lates in past 12 months + no subordinate liens unless approved
- 78% auto-cancel: No action needed — servicer removes on the scheduled date the balance hits 78% of original value
- Appraisal-based: Order new appraisal through servicer proving 80%+ equity from appreciation — available after 2 years of ownership (75% LTV required if under 5 years)
- Midpoint termination: PMI terminates at the halfway point of the amortization schedule regardless of LTV — year 15 on a 30-year loan
Does A 620 Score Change PMI?
Yes. A 620 credit score is the point where conventional financing opens up, which means PMI becomes removable instead of lasting for the life of the loan. If you are close to that cutoff, see Mortgage with 620 Credit Score to compare what changes in approval options, mortgage insurance, and pricing once you hit the conventional minimum.
Below 620, many borrowers end up in FHA because conventional approval gets much harder. FHA allows 3.5% down at 580+, but its mortgage insurance works differently. With less than 10% down, FHA MIP usually stays for the life of the loan. At 620, a conventional loan may let you buy with 3% to 5% down, pay PMI for a period of time, and remove it once you reach 80% loan-to-value.
The file still has to work. A 620 score does not guarantee cheap PMI or the best rate. Your debt-to-income ratio, down payment, reserves, and property type all affect pricing. For example, a borrower at 620 with 5% down and a 45% DTI will usually pay more than someone at 680 with 10% down and a 36% DTI. But crossing 620 is still a meaningful threshold because it gives you a path to cancel PMI later.
PMI vs FHA MIP: The Real Comparison
PMI and FHA MIP serve the same purpose but have fundamentally different structures. PMI is credit-score-sensitive and cancellable. MIP is flat-rate and permanent (with less than 10% down). This structural difference determines which program is cheaper at each credit tier.
Above 700 credit, conventional PMI is almost always cheaper than FHA MIP on a monthly basis — and it cancels, creating a widening savings gap over time. Below 680, FHA’s flat 0.55% MIP is often cheaper than the credit-adjusted PMI rate, despite being permanent. The crossover point varies by exact score, LTV, and loan amount — run both scenarios.
Strategies to Avoid PMI
If 20% down is not feasible, several strategies reduce or eliminate PMI without requiring the full down payment.
The piggyback loan (80/10/10) uses an 80% first mortgage plus a 10% second mortgage, with only 10% down. The first mortgage has no PMI because it is at 80% LTV. The second mortgage carries a higher rate but is typically cheaper than PMI. Lender-paid PMI (LPMI) rolls the PMI cost into a higher interest rate — eliminating the separate PMI payment but making it permanent since you cannot “cancel” a higher rate.
Lender Reality Check
Lender-paid PMI sounds attractive — no separate PMI payment — but the higher rate is permanent. With borrower-paid PMI, you cancel at 80% LTV and your payment drops. With LPMI, the rate never drops. LPMI is better if you plan to sell or refinance within 5–7 years. Borrower-paid PMI is better if you plan to stay 10+ years and reach 80% LTV through normal amortization.
Reduced PMI Programs
Fannie Mae HomeReady and Freddie Mac Home Possible offer reduced PMI rates for borrowers at or below 80% of area median income. The PMI savings can be $30–$80/month compared to standard Conventional 97 PMI on the same loan.
These programs require 3% down, a 620 credit minimum, and completion of a homebuyer education course. The reduced PMI is the primary financial advantage over standard conventional — the interest rate is the same. If your income qualifies, HomeReady or Home Possible should be your first choice over standard Conventional 97.
File Guidance
Before accepting PMI at origination, ask your lender to quote both borrower-paid and lender-paid PMI scenarios. Compare the total cost over 5, 7, and 10 years. If you are staying long-term, borrower-paid with cancellation at 80% LTV almost always wins. If you are likely to sell or refinance within 5 years, LPMI may save money.
The Bottom Line
PMI is not wasted money — it is the cost of buying a home with less than 20% down, and it cancels. For high-credit borrowers, PMI is cheap and conventional is the obvious choice. For low-credit borrowers, compare PMI cost against FHA MIP to find the cheaper path at your score. Plan for PMI removal at 80% LTV — every month after cancellation is pure savings that FHA borrowers are still paying.
Frequently Asked Questions
Can I deduct PMI on my taxes?
The PMI deduction has been extended and expired multiple times. Check current IRS guidance for the applicable tax year. When available, it phases out above $100,000 AGI. Consult a tax professional.
How long does it take to remove PMI?
On a 30-year loan with 5% down at a 7% rate, the balance reaches 78% (auto-cancel) around year 10. With extra principal payments or appreciation-based removal, you can eliminate it much sooner — sometimes within 2–5 years.
Does PMI cover me if I lose my job?
No. PMI protects the lender, not the borrower. If you default, PMI pays the lender for their loss. You receive no benefit from PMI. Separate mortgage protection insurance (not the same product) can provide borrower coverage, but it is optional and separate from PMI.
Can I get PMI removed without an appraisal?
Yes, if your loan balance has amortized to 80% of the original purchase price. No appraisal is needed for the standard 80% LTV borrower request or the 78% auto-cancel. Appraisal is only needed if you want early removal based on appreciated value before reaching 80% through amortization.
Is there a way to never pay PMI with less than 20% down?
Yes. The 80/10/10 piggyback structure avoids PMI with 10% down. VA loans have no PMI at any LTV. Some credit unions offer PMI-free conventional programs for members. Lender-paid PMI eliminates the separate charge but raises your rate permanently.
Last updated: April 18, 2026 · Reviewed by The Lenders Network Editorial Team