You closed on your home, you’re making every payment on time, and yet every month a chunk of your hard-earned money disappears into something that protects your lender — not you. Private mortgage insurance feels like a tax on not having enough money, and for millions of homeowners it quietly drains hundreds of dollars a year with no obvious end in sight.
The good news: PMI is not permanent. With the right moves, you can eliminate it years ahead of schedule and redirect that money toward actual wealth-building. This guide explains exactly what PMI is, how much it really costs you, and the fastest legal paths to getting rid of it for good.
Here is what we cover:
What Is PMI on a Mortgage?
PMI stands for private mortgage insurance. It is insurance that your lender requires you to buy when your down payment is less than 20 percent of the home’s purchase price. Despite the fact that you pay the premiums, the policy protects the lender — not you — if you default on the loan.
Here is the logic from the lender’s perspective: a borrower who puts less than 20 percent down has less skin in the game and is statistically more likely to walk away during a financial hardship. PMI compensates the lender for that added risk. The moment your equity crosses certain thresholds, that risk drops and the insurance is no longer required.
PMI is arranged by your lender and provided by a private insurance company — firms like MGIC, Radian, or Genworth. It is not the same as homeowner’s insurance, which protects your property. It is also distinct from the mortgage insurance on government-backed loans, which we cover below.
For a deeper look at how mortgage insurance is regulated, the Consumer Financial Protection Bureau’s PMI explainer is the most reliable starting point.
How Much Does PMI Actually Cost?
PMI typically runs between 0.5 percent and 1.5 percent of your original loan amount per year, depending on your credit score, loan type, and loan-to-value ratio. On a $350,000 loan, that is $1,750 to $5,250 per year — or roughly $146 to $437 per month bolted onto your mortgage payment.
Most borrowers land somewhere in the middle. If your credit score is above 760 and you put 10 percent down, you might see rates closer to 0.5 percent. If your score is in the low 700s and you put 5 percent down, expect closer to 1 percent or above.
The cost is almost always rolled into your monthly payment, but some lenders offer alternatives:
- Borrower-paid PMI (BPMI): Monthly premium added to your payment. Most common arrangement. Cancellable once you reach 20 percent equity.
- Lender-paid PMI (LPMI): Lender covers the premium upfront but charges you a higher interest rate for the life of the loan. You cannot cancel it by building equity — you would need to refinance.
- Single-premium PMI: You pay a lump sum at closing. Lower monthly payment, but you lose that cash if you sell or refinance early.
For most borrowers, monthly borrower-paid PMI is the best option because it is the one you can eliminate.
PMI vs. MIP: Know the Difference
If you have an FHA loan, you do not pay PMI. You pay MIP — mortgage insurance premium — and the rules are significantly less favorable. This distinction matters enormously for your removal strategy.
| Feature | PMI (Conventional Loan) | MIP (FHA Loan) |
|---|---|---|
| Who sets the rules? | Lender + Homeowners Protection Act | FHA / HUD |
| Upfront cost? | None (usually) | 1.75% of loan amount at closing |
| Annual cost range | 0.5% – 1.5% | 0.15% – 0.75% |
| Can it be cancelled? | Yes – at 20% equity (requested) or 22% (automatic) | Only if you put 10%+ down (after 11 years); otherwise, for life of loan |
| Removal method | Equity-based cancellation or refinance | Must refinance to a conventional loan |
| Credit score impact on rate? | Yes – higher score = lower PMI | Less variation |
If you have an FHA loan with a down payment under 10 percent, your only real exit from lifetime MIP is to refinance into a conventional loan once you have built enough equity. The HUD FHA loan information page has full details on MIP rules by origination date.
Your Legal Rights: Automatic Cancellation Rules
This is the part most homeowners do not know: federal law gives you specific rights around PMI cancellation. The Homeowners Protection Act of 1998 (HPA) requires lenders to automatically cancel borrower-paid PMI under defined conditions, and to disclose those conditions at closing.
Here is exactly how the law works:
- Borrower-requested cancellation: You have the right to request PMI cancellation in writing once your loan-to-value ratio reaches 80 percent, based on the original purchase price or appraised value (whichever is lower). Your payments must be current and you must have a good payment history.
- Automatic cancellation: If you have not requested cancellation, the lender must automatically cancel PMI when your LTV reaches 78 percent based on your original amortization schedule — even if your home has not appreciated. Your account must be current.
- Final termination: If for any reason PMI has not been cancelled, lenders must terminate it at the midpoint of the loan’s amortization period (year 15 on a 30-year mortgage) as long as your payments are current.
Note the word “original” in those rules. Automatic cancellation is based on your original amortization schedule — not accelerated by home appreciation. To use appreciation to your advantage, you need to make an active request. The CFPB’s breakdown of the Homeowners Protection Act explains your rights in plain language.
5 Ways to Remove PMI Faster
You do not have to wait for the automatic cancellation date. Here are five concrete strategies, ranked from lowest effort to highest:
1. Make Extra Principal Payments
Every additional dollar you put toward principal shrinks your loan balance and accelerates the date your LTV hits 80 percent. Even an extra $100 per month on a $300,000 loan can cut years off your PMI timeline. Use your lender’s online portal to designate extra payments as “principal only” — otherwise they may be applied to future interest first.
2. Request Cancellation the Moment You Hit 80 Percent LTV
Do not wait for automatic cancellation at 78 percent. The moment your balance drops to 80 percent of the original value, send a written cancellation request to your servicer. You will need to document good payment history and in some cases certify that there are no subordinate liens on the property. Your servicer is legally required to respond.
3. Request a New Appraisal Based on Appreciation
If your home’s value has increased significantly since you bought it, your actual LTV may already be below 80 percent even if your original amortization schedule says otherwise. In this case, you can ask your lender to order a new appraisal. If the appraisal supports at least 20 percent equity, many lenders will cancel PMI — though some require you to have the loan for at least two years, and others may require 25 percent equity if the loan is less than five years old. Call your servicer and ask specifically what their policy is.
4. Refinance Into a New Conventional Loan
If your home has appreciated and interest rates are favorable, refinancing can eliminate PMI entirely by resetting your loan at a lower LTV. This approach also works for FHA borrowers trapped with lifetime MIP. Run the numbers carefully — closing costs typically run 2 to 5 percent of the loan amount, so you need the monthly savings to justify the upfront cost within a reasonable payback period.
5. Make Targeted Lump-Sum Payments
A tax refund, bonus, or other windfall applied directly to principal can push your LTV across the 80 percent threshold in one move. This is often the fastest single action you can take if you have access to a significant cash amount. Confirm with your servicer how to apply the payment correctly before sending it.
Is Paying PMI Ever Worth It?
Controversial take: sometimes, yes. If waiting to save a full 20 percent down payment means missing out on two or three years of home appreciation in a rising market, buying sooner with PMI and building equity through appreciation can come out ahead financially.
The math depends entirely on your local market, how quickly you can build equity, and what you would otherwise do with the down payment savings. In a flat or declining market, waiting to put 20 percent down avoids both PMI and negative equity risk.
What is never worth it: ignoring PMI once you have the equity to remove it. That is pure money left on the table. The average PMI payment is about $100 to $300 per month. Over 24 months of unnecessary PMI payments, you are handing your lender’s insurer $2,400 to $7,200 for a policy that does nothing for you.
Track your equity, know your rights under the Homeowners Protection Act, and as soon as your loan-to-value ratio supports it — make the call and put that money back in your pocket. The Federal Reserve’s research on borrower responses to mortgage insurance confirms that most homeowners who are eligible to cancel PMI delay far longer than necessary, often due to simple lack of awareness.
You now have no excuse to be in that group.
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Related: How to Pay Off Your Mortgage Early: 7 Strategies That Actually Work