PMI — private mortgage insurance — is one of the most misunderstood line items on a mortgage. The name makes it sound protective, but it doesn't protect you. It protects the lender if you default. You pay for it because your down payment (under 20%) makes the loan riskier for them, not because it insures anything of yours.
The good news: PMI isn't permanent, and in most cases isn't even negotiable to avoid — it either applies or it doesn't, based on math you can plan around before you sign anything.
How much does PMI actually cost?
PMI rates typically scale with your down payment — the lower your down payment, the higher the rate, since the lender is taking on more risk:
- 15–19.99% down: around 0.5% of the loan amount per year
- 10–14.99% down: around 0.75% per year
- 5–9.99% down: around 1.0% per year
- 3–4.99% down: around 1.25%+ per year
On a $350,000 loan at 1% PMI, that's roughly $3,500/year — about $292/month — added on top of principal, interest, taxes, and insurance. It's not trivial, and it's worth knowing exactly when it goes away.
When PMI automatically cancels
In the U.S., the Homeowners Protection Act requires lenders to automatically cancel PMI once your loan balance is scheduled to hit 78% of the home's original value — based on the original amortization schedule, regardless of current market value — as long as you're current on payments. This happens without you doing anything.
How to remove it earlier
You don't have to wait for the automatic 78% threshold. You can request removal once your balance reaches 80% of the original value, or sooner if your home's current value has risen enough to put you at 80% equity — though that route usually requires a new appraisal, which the lender may or may not accept a request for. Two ways this shows up in practice:
- Paying down principal faster. Extra payments toward principal get you to the 80% threshold sooner than the original schedule assumed.
- Home value appreciation. If your home has gained value since purchase, you may already be above 20% equity well before your amortization schedule would predict — but you'll likely need to pay for an appraisal to prove it.
How to avoid PMI entirely
- Put 20% or more down. The cleanest way — no PMI is charged on a conventional loan at 20%+ down from day one.
- VA loans. Eligible veterans and service members can get 0% down with no PMI at all — a real structural advantage over conventional financing.
- Lender-paid PMI (LPMI). The lender covers the PMI cost in exchange for a higher interest rate. You don't see a separate PMI line item, but you're still paying for it — just baked into the rate for the life of the loan, which means, unlike standard PMI, it never cancels on its own.
- Piggyback loans (80-10-10). A first mortgage at 80%, a second loan at 10%, and 10% down — avoids PMI but adds a second loan with its own rate and terms to manage.
For most buyers, the honest tradeoff is: PMI is a temporary cost that ends automatically, while lender-paid PMI or a piggyback loan can avoid a monthly line item but at a real, sometimes larger, cost elsewhere. Run the actual numbers before assuming avoidance is cheaper.
See your PMI cost and payoff timeline
The mortgage calculator estimates your PMI amount and shows total PMI paid over the loan.
The bottom line
PMI isn't a scam or a permanent tax on a smaller down payment — it's a temporary, calculable cost with a defined end date, and real options to end it sooner or skip it entirely. The only mistake is not knowing which bucket you're in before you sign.