What Is PMI (Private Mortgage Insurance)

Private Mortgage Insurance is one of the more misunderstood costs in homebuying, mostly because of who it actually protects — and it isn't you. PMI is typically required on a conventional loan when your down payment is below 20% of the purchase price, and it exists to protect the lender's financial interest if you stop making payments, not to protect the homeowner's investment.

The cost isn't a flat fee — it typically runs between 0.46% and 1.5% of your original loan amount per year, depending on your down payment size and credit score. On a $300,000 mortgage, that translates to roughly $115 to $375 a month, usually folded directly into your regular mortgage payment rather than billed separately.

Two factors move that cost the most: a larger down payment lowers your PMI rate, and a higher credit score lowers it further, since both signal lower risk to the insurer backing the policy.

PMI isn't permanent. You can generally request removal once your loan balance drops below 80% of your home's original purchase price, or once you've built up 20% equity through payments or appreciation. Even if you never ask, federal law requires your lender to automatically cancel PMI once your balance reaches 78% of the home's original value, as long as your payments are current.

Because PMI is specifically tied to conventional loans and the 20% down payment threshold, other loan types — like FHA loans — use their own separate mortgage insurance rules that don't follow the same removal timeline.