What Is PMI? Private Mortgage Insurance, How You Pay for It, and How to Remove It

By Ahmad Dogar
FitCreeper Finance · Published October 2026 · Educational only — not personalized financial, legal, or tax advice

How this article was made: Drafted with AI assistance, then checked line by line against the primary sources listed at the end of this page (the CFPB's Ask CFPB answers on private mortgage insurance, mortgage insurance, PMI removal, down payments, FHA loans, and piggyback mortgages; the Homeowners Protection Act (12 U.S.C. 4902); and IRS Publication 936 and Tax Topic 504), fetched on October 11, 2026. Worked examples use simple illustrative numbers, not real accounts. Rules and company policies change, so re-check the linked sources before you act.

If you're buying a home with less than 20% down, you'll probably run into three letters on your loan paperwork: PMI. Private mortgage insurance lets many buyers get into a home years sooner than they could if they waited to save a full 20%. But it adds to your monthly cost, it doesn't protect you, and many homeowners keep paying it longer than they need to.

This guide explains what PMI is, how you pay for it, how it compares with mortgage insurance on FHA, USDA, and VA loans, and the federal rules that let you cancel it. It's based on the Consumer Financial Protection Bureau's (CFPB) mortgage answers and the federal Homeowners Protection Act. Worked examples are illustrative, and the PMI premium used below is an assumption for illustration, not a quote or a typical rate.

What PMI is

PMI basics from the CFPB: it is usually required on a conventional loan with less than 20 percent down, it protects the lender and not you, it is arranged by the lender and provided by private insurers, and it raises your loan cost but can help you qualify

The CFPB defines private mortgage insurance (PMI) as a type of mortgage insurance you might be required to buy if you take out a conventional loan with a down payment of less than 20% of the purchase price. The requirement usually also applies when refinancing a conventional loan if your equity is less than 20% of the home's value.

PMI is arranged by your lender and provided by private insurance companies. It insures the lender against losses if borrowers stop paying. The CFPB is blunt about who it helps: "PMI protects the lender—not you." If you fall behind, PMI doesn't stop a foreclosure, and you can still lose your home.

So why accept it? Because, as the CFPB explains, mortgage insurance lowers the lender's risk, which can help you qualify for a loan you might not otherwise get. The trade-off is that it increases the cost of your loan.

The CFPB's down payment answer frames the choice: generally, the larger your down payment, the lower your rate and the more likely you are to be approved. If you can't put 20% down, lenders usually require PMI or a government-backed loan from FHA, VA, or USDA.

How you pay for PMI

Ways to pay for PMI and where each appears on the Loan Estimate: a monthly premium shown on page 1 in Projected Payments, a one-time upfront premium shown on page 2 in Section B, or a combination of both

The CFPB describes three ways PMI can be paid:

Monthly premium: the most common. It's added to your mortgage payment and shown on page 1 of your Loan Estimate and Closing Disclosure, in the "Projected Payments" section.
One-time upfront premium: paid at closing and shown on page 2, Section B. The CFPB warns that if you pay upfront and then move or refinance, you might not get a refund.
Both upfront and monthly premiums: shown in both places.

Before choosing a lender, ask what PMI options it offers, and ask the loan officer to calculate total costs over a few realistic timeframes. Monthly PMI is part of your total monthly payment along with principal, interest, taxes, and insurance, the CFPB notes, so budget for the full amount. For the insurance piece of that total, see our guide to what affects homeowners insurance cost.

What PMI costs

The CFPB says PMI rates vary by down payment amount and credit score, and are generally cheaper than FHA mortgage insurance for borrowers with good credit. There's no single official PMI rate, so the only reliable number is the one on your own Loan Estimate.

To show the math, here's a purely illustrative assumption: an annual premium equal to 0.5% of the loan amount. On a $315,000 loan, that would be about $131 a month. Your actual premium could be higher or lower. Improving your credit before you apply may help with pricing; see how to improve your credit score.

PMI vs FHA, USDA, and VA mortgage insurance

Mortgage insurance by loan type: conventional loans may require private mortgage insurance, FHA loans require FHA mortgage insurance with upfront and monthly premiums, USDA loans have similar upfront and monthly costs, and VA loans have no monthly mortgage insurance but charge an upfront funding fee

PMI is specific to conventional loans. The CFPB explains how other low-down-payment loans handle mortgage insurance:

FHA loans: mortgage insurance premiums are paid to the Federal Housing Administration and are required on all FHA loans. FHA insurance costs the same regardless of credit score, with only a slight increase for down payments under 5%. It includes an upfront premium, paid at closing or rolled into the loan, plus a monthly premium. FHA qualifying standards are generally more flexible than for conventional loans.
USDA loans: similar to FHA but typically cheaper, with costs at closing and monthly. The upfront portion can be rolled into the loan, which raises the loan amount and overall cost.
VA-backed loans: the VA guarantee replaces mortgage insurance. There's no monthly mortgage insurance premium, but you pay an upfront funding fee that varies by service type, down payment, disability status, whether you're buying or refinancing, and whether it's your first VA loan.

Rolling an upfront fee into the loan avoids paying it at closing but increases both your loan amount and your total cost, according to the CFPB. And the cancellation rules below apply to PMI; the CFPB says FHA and VA loans have different requirements, so ask your servicer.

Alternatives that skip PMI

Some lenders offer conventional loans with smaller down payments and no PMI in exchange for a higher interest rate. The CFPB says that can be more or less expensive than PMI depending on factors including how long you stay in the home. Another option is a "piggyback" second mortgage, where you borrow, for example, 80% on a first mortgage and 10% on a home equity loan or line of credit. The CFPB cautions that the piggyback loan typically has a higher rate, often adjustable, and can make refinancing harder because the second lender has to agree. Ask for a quote on the same loan as a single mortgage with mortgage insurance and compare total costs.

Your rights to remove PMI

The three federal PMI exits under the Homeowners Protection Act: borrower can request cancellation when the balance is scheduled to reach 80 percent of original value, the servicer must automatically end PMI at 78 percent, and PMI must end the month after the loan's midpoint, such as year 15 of a 30-year loan

Unlike many fees, PMI doesn't have to last for the life of the loan. The Homeowners Protection Act sets federal rules for PMI on single-family principal residences with mortgages that closed on or after July 29, 1999, the CFPB explains. There are three ways it ends:

Request cancellation at 80%. You have the right to ask your servicer to cancel PMI on the date your principal balance is scheduled to fall to 80% of the home's original value. That date should appear on the PMI disclosure form you received with your mortgage. You can ask earlier if extra payments bring your balance to 80% sooner.
Automatic termination at 78%. Even if you don't ask, your servicer generally must end PMI on the date your balance is scheduled to reach 78% of the original value, as long as you're current on payments. If you're behind, it ends shortly after you catch up.
Final termination at the midpoint. PMI must end the month after you reach the midpoint of the loan's amortization schedule, even if your balance hasn't reached 78%. For a 30-year loan, that's after 15 years, if you're current. The CFPB says this is most likely to matter for loans with interest-only periods, principal forbearance, or balloon payments.

"Original value" generally means the contract sales price or the appraised value when you bought, whichever is lower. If you refinanced, it's the appraised value at the time of the refinance.

The CFPB adds that loan investors such as Fannie Mae and Freddie Mac often have their own cancellation guidelines, which can be more favorable than the federal rules but not less. Some lenders and servicers may also allow removal under their own standards, so ask your servicer what applies to your loan. Different rules apply if your lender pays for the mortgage insurance.

How to request cancellation at 80%

Five steps to request PMI cancellation: find the date on your PMI disclosure, confirm you are current with a good payment history, make sure there are no second liens, be ready to show the value has not declined, and send a written request to your servicer

Under the statute (12 U.S.C. 4902) and the CFPB's summary, your servicer must grant a cancellation request if you:

Make the request in writing.
Have a good payment history and are current on your payments.
Can certify there are no junior liens, such as a second mortgage, on the home.
Can provide evidence, such as an appraisal, if the servicer requires it, that the property's value hasn't declined below its original value. If it has, you may not be able to cancel on schedule.

When PMI ends, your monthly payment drops. The CFPB lists canceling PMI as one of the common reasons a mortgage payment changes, so check your next statement to confirm it's gone.

Worked example: when could you drop PMI? (illustrative)

Illustrative bar chart of how many monthly payments it takes to reach 80 percent of a 350,000 dollar home's original value on a 30-year loan at 7 percent: about 61 payments with 15 percent down, 101 payments with 10 percent down, and 130 payments with 5 percent down

Here's an illustrative example using scheduled payments only. You buy a $350,000 home with 10% down ($35,000) and take a $315,000, 30-year fixed loan at 7%, a principal and interest payment of about $2,096. The original value is $350,000, so:

80% of original value = $280,000
78% of original value = $273,000

On the regular schedule, your balance would reach $280,000 after about 101 payments, roughly 8 years and 5 months, when you could request cancellation. It would reach $273,000 after about 115 payments, roughly 9 years and 7 months, when PMI would end automatically. At the illustrative 0.5% premium, PMI would cost about $15,000 in total before it ended automatically.

Down payment changes the timeline a lot. With 15% down ($297,500 loan), the 80% point arrives after about 61 payments; with 5% down ($332,500 loan), after about 130 payments.

Illustrative bar chart of payments needed to reach the 280,000 dollar cancellation point on a 315,000 dollar loan at 7 percent: about 101 payments with no extra, 78 with 100 dollars extra a month, 64 with 200 dollars extra, and 41 with 500 dollars extra

Extra principal payments move the date up. On the $315,000 loan, paying $100 a month extra would reach $280,000 after about 78 payments; $200 extra, about 64 payments; and $500 extra, about 41 payments. Because you can request cancellation once extra payments bring your balance to 80% of original value, prepaying can save months or years of premiums. Just send the request in writing once you get there; the automatic 78% termination is based on the original schedule.

If your home has gained value, the federal 80% test still uses the original value. Some investors and servicers have their own, sometimes more flexible, cancellation standards, so ask your servicer whether a current appraisal can be used.

Is PMI tax deductible?

Don't count on it. IRS Publication 936 for 2025 returns says the itemized deduction for mortgage insurance premiums has expired and can no longer be claimed, and IRS Topic 504 lists mortgage insurance premiums among amounts that aren't deductible as interest. Tax law can change; Publication 936 points readers to IRS.gov/Pub936 for later developments, so check the current version for the year you file or ask a tax professional.

Should you wait for 20% down?

PMI isn't necessarily a mistake. The CFPB notes that putting 20% down avoids PMI on a conventional loan and could get you a lower rate, but waiting years to save more also has costs. Questions to weigh:

Can you afford the total monthly payment, including PMI, and still save? Your debt-to-income ratio is one check lenders use.
How long until you'd reach 80% on schedule, and could you prepay to get there sooner?
Would a conventional loan with PMI cost less than an FHA loan, given your credit and down payment? The CFPB suggests comparing them, since either can be cheaper depending on your credit score, down payment, lender, and market.
Will you still have an emergency fund after closing? Keeping savings in a high-yield savings account can help while you build toward a larger down payment.

FAQ

What is PMI on a mortgage?

Private mortgage insurance that's usually required on a conventional loan with less than 20% down. The CFPB says it protects the lender, not you, if you stop paying.

How do I avoid paying PMI?

Put at least 20% down on a conventional loan, according to the CFPB. Some lenders offer no-PMI loans at a higher interest rate, and piggyback second mortgages are another option, but the CFPB says to compare total costs.

When does PMI go away?

You can request cancellation in writing when your balance is scheduled to reach 80% of the home's original value, and your servicer generally must end it automatically at 78%, or at the loan's midpoint, if you're current.

Can I remove PMI early by paying extra?

Yes. The CFPB says you can ask to cancel ahead of schedule if extra payments bring your balance to 80% of the original value, provided you meet the other requirements.

Is FHA mortgage insurance the same as PMI?

No. FHA mortgage insurance is paid to the FHA, required on all FHA loans, and has both upfront and monthly premiums. The CFPB says FHA and VA loans have different cancellation requirements than PMI.

Does PMI protect me if I lose my job?

No. PMI protects the lender. If you fall behind, you can still lose your home to foreclosure, the CFPB warns. If you're struggling, contact your servicer early or a HUD-approved housing counselor.

Is PMI tax deductible?

IRS Publication 936 for 2025 returns says the itemized deduction for mortgage insurance premiums has expired. Check the current IRS guidance for the year you file.

Sources

Educational disclaimer: This article is general U.S. consumer-finance education, not financial, legal, tax, or insurance advice, and it is not a recommendation to buy a home or to take out, refinance, or decline any mortgage, loan, or insurance product. FitCreeper Finance does not lend money, broker or service mortgages, sell insurance, or receive pay from companies mentioned here. Mortgage rates, lender pricing, tax rules, and state laws change and vary; confirm details with the official sources linked above, your own Loan Estimate and Closing Disclosure, and, for your situation, a qualified professional such as a HUD-approved housing counselor, a tax professional, or a real estate attorney. Questions or corrections: fryntavo@gmail.com.