By the CalcLedger editorial team · Updated September 2026 · Examples use illustrative rates · How we calculate
If you put less than 20% down on a conventional mortgage, your lender will almost certainly require private mortgage insurance (PMI). It's one of the least understood lines on a mortgage statement. It protects the lender, not you, and you pay for it. The good news: unlike most costs of owning a home, PMI is temporary, and you can often get rid of it sooner than the lender's schedule says.
What PMI is and why it exists
A lender takes on more risk when a borrower has little equity. If the home is sold in foreclosure early in the loan, there may not be enough value to repay the balance. PMI covers part of that loss for the lender. In exchange, lenders will approve conventional loans with as little as 3% to 5% down, which lets many buyers purchase years sooner than they could if they had to save 20%.
How much PMI costs
PMI is priced as a yearly percentage of the loan amount, usually somewhere around 0.3% to 1.5%. The main factors are your credit score and how much you put down. It's typically added to your monthly payment.
Example: a $350,000 home with 10% down means a $315,000 loan.
| PMI rate | Monthly cost | Yearly cost |
|---|---|---|
| 0.5% | $131 | $1,575 |
| 0.7% | $184 | $2,205 |
| 1.0% | $262 | $3,150 |
A higher credit score can make a big difference here. Buyers with scores in the 760+ range typically get the lowest PMI rates.
The three ways PMI ends on a conventional loan
The federal Homeowners Protection Act sets clear rules for most conventional mortgages on a primary home:
- You can request removal at 80%. Once your balance is scheduled to reach 80% of the home's original value, you can ask the lender in writing to cancel PMI. You generally need a good payment history, and the lender may require proof that the home hasn't lost value.
- It ends automatically at 78%. When the balance is scheduled to reach 78% of the original value, the lender must cancel PMI on its own, as long as you're current on payments.
- Final cutoff at the midpoint. If neither has happened, PMI must end at the halfway point of the loan term, year 15 of a 30-year loan, if you're current.
In the example above (a $315,000 loan at 6.5% for 30 years), the regular schedule reaches 80% of the original value in about 7 years and 11 months and 78% in about 9 years and 1 month. At $184 a month, waiting for removal at 80% means paying about $17,500 in PMI.
How to drop PMI years early
Make extra principal payments. Paying an extra $200 a month on the same loan reaches the 80% mark in about 5 years and 2 months instead of nearly 8. That cuts total PMI to about $11,400 and saves thousands in interest too. Ask your lender to recalculate PMI based on your actual balance, not the original schedule.
Use appreciation. If your home has gained value, your equity may already be above 20% based on today's value. Many lenders will remove PMI based on a new appraisal, often requiring you to have owned the home for at least two years, with stricter thresholds (such as 75% loan-to-value) before year five. Check your lender's policy. You'll usually pay for the appraisal.
Refinance. If rates are favorable and you now have 20% equity, a conventional refinance can drop PMI and possibly lower your rate. Run the break-even math first.
Total PMI paid before reaching 80% loan-to-value
$315,000 loan at 6.5%, PMI $184 a month
FHA mortgage insurance works differently
FHA loans charge a mortgage insurance premium (MIP) instead of PMI: an upfront premium (usually added to the loan) plus an annual premium paid monthly. On most current FHA loans, the annual MIP lasts 11 years if you put down at least 10%. With less than 10% down, it lasts for the life of the loan. The 78% automatic cancellation rule doesn't apply. For many FHA borrowers, the only way to drop it is to refinance into a conventional loan once they have enough equity.
VA loans have no monthly mortgage insurance but charge a one-time funding fee. USDA loans charge an annual guarantee fee.
Is paying PMI a bad idea?
Not necessarily. Saving until you have 20% down can take years, and home prices and rents can rise faster than your savings. A few years of PMI can cost less than waiting. It's also usually smart to keep an emergency fund instead of putting every dollar into the down payment. The key is to treat PMI as temporary: know your 80% date and plan to reach it.
See the effect on your payment
Use the mortgage calculator to compare your payment with different down payments, and add your PMI estimate to see the full monthly cost. For how your balance falls over time, see how mortgage amortization works.