Put down less than 20% on a conventional mortgage and your lender will almost certainly require private mortgage insurance. It exists to protect the lender if you default. You pay the premium; you receive no coverage.
How much it costs
PMI typically runs 0.5% to 1.5% of the loan amount per year. The rate you get depends mainly on your credit score and how small your down payment is — a 3% down payment with a 660 score sits at the top of that range, a 15% down payment with a 780 score near the bottom.
PMI is a percentage of the loan, not the purchase price. Those are different numbers, and the gap is largest exactly when PMI applies. It also does not apply at all at 20% down — so any example that opens with "a 20% down payment eliminates PMI" and then computes the premium on the full home price is describing a scenario that cannot happen.
| Down payment | Loan amount | At 0.5%/yr | At 1.0%/yr | At 1.5%/yr |
|---|---|---|---|---|
| 3% ($12,000) | $388,000 | $1,940 | $3,880 | $5,820 |
| 5% ($20,000) | $380,000 | $1,900 | $3,800 | $5,700 |
| 10% ($40,000) | $360,000 | $1,800 | $3,600 | $5,400 |
| 15% ($60,000) | $340,000 | $1,700 | $3,400 | $5,100 |
| 20% ($80,000) | $320,000 | no PMI | no PMI | no PMI |
At 10% down and a 1% rate that is $3,600 a year, or $300 a month on top of principal, interest, taxes and insurance — and none of it builds equity.
Getting rid of it: two different rules
1. You ask, at 80% loan-to-value
Under the Homeowners Protection Act you can request cancellation once your balance reaches 80% of the original property value. This is a request, not automatic. Lenders can require that you are current on payments, have no second lien, and may ask for a fresh appraisal at your expense to confirm the value has not fallen.
Crucially, this is based on the original value, so it can be reached faster by paying down principal — which is one of the strongest arguments for overpaying early.
2. It terminates automatically, at 78%
Your servicer must terminate PMI once the balance reaches 78% of the original value, based on the original amortization schedule, provided you are current. No request, no appraisal, no discretion. If it is still being charged past that point, that is a servicer error worth raising immediately.
If local prices have risen, your loan-to-value may already be below 80% even without extra payments. Lenders will generally consider a new appraisal for this after a couple of years, though requirements vary. An appraisal costs a few hundred dollars — against $300 a month, that pays back in weeks if it succeeds.
PMI is not the same as FHA mortgage insurance
People conflate these constantly, and the difference matters enormously.
| Conventional PMI | FHA MIP | |
|---|---|---|
| Upfront charge | None | Typically 1.75% of the loan, financed |
| Annual charge | 0.5–1.5% of loan | Varies by loan size and term |
| Removable? | Yes, at 80% / auto at 78% | Often for the life of the loan |
| Depends on credit score | Strongly | Much less |
| Down payment minimum | Typically 3% | 3.5% |
The headline: on most FHA loans taken with a minimum down payment, mortgage insurance lasts the entire loan term. The only way off it is refinancing into a conventional loan — which means qualifying again, at whatever rates exist then. For borrowers who can qualify conventionally, that single difference often outweighs a modest rate advantage on the FHA side.
Alternatives worth knowing about
- Lender-paid PMI. The lender covers the premium in exchange for a higher interest rate. Removes a monthly line item, but the rate increase is permanent — it does not disappear at 78%. Usually worse over a full term.
- Single-premium PMI. One upfront payment instead of monthly. Can work out cheaper if you stay long, and is often non-refundable if you sell or refinance early.
- Piggyback (80/10/10). A first mortgage at 80%, a second lien at 10%, 10% down. Avoids PMI but the second lien typically carries a higher, often variable rate. Compare total cost, not just the absence of PMI.
The short version
- PMI protects the lender and costs you 0.5–1.5% of the loan annually.
- You can request removal at 80% LTV; it must terminate automatically at 78%.
- Overpaying principal reaches those thresholds sooner.
- FHA mortgage insurance usually cannot be removed at all — that is a different product with different consequences.
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