Private mortgage insurance (PMI): what it is, what it costs, how it ends

If you bought with a conventional loan and less than 20% down, you are almost certainly paying for insurance that does not protect you: it protects the lender. Here is what it is, what it costs, and — what most people are searching for — how and when it comes off.

PMI (private mortgage insurance) is insurance the lender requires when you buy with a conventional loan and your down payment is less than 20% of the price. The lender arranges it with a private insurance company and you pay the premium, usually inside your monthly payment. If you stop paying, the insurance covers the lender — it covers you for nothing, and you can still lose the home.

• It comes back when you refinance. Refinance a conventional loan while you still owe more than 80% of your home's value, and PMI returns.
• There are ways to pay it. The common one is a monthly premium. Others: a single upfront premium at closing, or part upfront and part monthly. Pay upfront and then sell or refinance soon, and that money may not come back.
• Sometimes the lender pays it and you never see it. In that version (lender-paid) there is no PMI line in your payment, but the loan's rate is higher: you still pay for it, dissolved into the interest, and it does not "come off" the way the other kind does.

PMI is not your homeowner's insurance (fire and flood) and it is not FHA's mortgage insurance. Three different things that get confused because all three ride in the same monthly payment.

PMI has no published rate card like FHA's. Each insurer prices it from your credit score, your down payment and how much of the value you finance: better credit and more money down make it cheaper; the reverse makes it more expensive. That is why any "average PMI cost" you read is not your cost.

• Your exact figure is already in your hands. It is printed on page 1 of your Loan Estimate and your Closing Disclosure, in the Projected Payments section, as its own line inside the monthly payment.
• It is expressed as an annual percentage of the loan and charged monthly. What you pay falls with a lower rate, and disappears entirely the day it is cancelled (below).
• Compare it before you sign. Two lenders can quote the same loan with different premiums, because each works with its own insurers. Ask for the quote with PMI broken out, not just the total payment.

For single-family homes that are your principal residence, with loans closed on or after July 29, 1999, federal law (the Homeowners Protection Act) gives you three exits. Mind the detail that changes everything: the law measures against your home's original value — the lower of the purchase price and the appraisal from when you bought — not against what it is worth today.

1. 1Find your dateYour PMI disclosure form, the one you received at closing, shows the first date you can request cancellation. If you cannot find it, your servicer (the company that collects your payment) will give it to you.
2. 2Ask in writingWhen your balance touches 80% of the original value — or sooner, if you made extra principal payments — write to your servicer asking for cancellation. Keep a copy: the law requires them to grant it if you meet the conditions.
3. 3Confirm it left your paymentThe next month your payment should drop by the exact amount of the premium. If it does not, or if they impose conditions the law does not require, the CFPB takes the complaint.

What if your home went up in value? The law does not count that increase, but Fannie Mae and Freddie Mac — which back most conventional loans — have their own guidelines and may allow cancellation based on today's value with a new appraisal that you pay for. Their guidelines can never be worse than the law; ask your servicer which set applies to your loan.

If your loan is FHA, your insurance is not PMI: it is the MIP, and it plays by different rules. No private insurer sets it: HUD charges it, at the same rate for everyone, regardless of your credit score.

And the VA loan, for those who served, has no monthly mortgage insurance of any kind. Each program in detail: FHA minimum requirements and VA home loan requirements.

• The clean exit is 20% down. With 20% or more down, a conventional loan carries no PMI. If you are close, sometimes it pays to wait and save the difference: compare it against the PMI you would pay in the meantime.
• Your credit sets the price. Because the rate depends on your score, raising it before you buy lowers the premium — and the interest rate too. See the credit score you actually need.
• Compare programs, not just lenders. With little money down, an FHA loan with its MIP, or a VA loan if you served, can come out cheaper than a conventional loan with PMI — or the other way around, depending on your credit. The math has to run on your numbers, not the brochure.
• For the tax question, ask your accountant. Whether mortgage insurance premiums are deductible changes with tax law; do not make a decision counting on a deduction without confirming it with whoever does your taxes.

How much cash you need in total on signing day, insurance and all, is in how much cash you need.

• Consumer Financial Protection Bureau (CFPB), what private mortgage insurance is, who it protects and how it is paid: consumerfinance.gov
• Consumer Financial Protection Bureau (CFPB), when PMI can be removed: 80% on request, 78% automatic and the loan midpoint, under the Homeowners Protection Act: consumerfinance.gov
• HUD, Mortgagee Letter 2023-05: FHA's MIP rates (1.75% upfront and 0.50–0.55% annual) and duration, as recorded in this site's FHA requirements guide: hud.gov