Private mortgage insurance (PMI) is a fee you may need to pay if you take out a conventional loan with less than 20% down. PMI doesn’t protect you as the borrower — it protects the lender in case you default on your loan.
While PMI adds to your monthly housing cost, it isn’t permanent. Once you’ve built enough equity in your home, you can request to have PMI removed — and eventually, lenders must cancel it automatically. Here’s how PMI works, how much it costs, and your options for paying it.
How PMI works
On a conventional loan, PMI is usually required if your loan-to-value ratio (LTV) is above 80% — in other words, if your down payment is less than 20% of the home’s value.
PMI reduces the lender’s risk by covering part of their losses if you stop making payments. For example, if you buy a $200,000 home with 5% down, you’re only putting up $10,000. PMI protects the lender for the gap between your down payment and the “ideal” 20% ($40,000).
The cost of PMI depends on factors like your credit score, down payment, and loan type, but typically ranges from 0.2% to 2% of the loan balance annually. That works out to about $30–$70 per month per $100,000 borrowed.
PMI payment options compared
| PMI option | How it works | Pros | Cons | Best for |
|---|---|---|---|---|
| Monthly (borrower-paid PMI) | Premium added to your mortgage payment until you reach ~20% equity. |
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Buyers with limited cash who want flexibility |
| Single-premium PMI | One-time payment at closing (can be financed); refundable or non-refundable. |
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Buyers with extra cash or seller credits |
| Split-premium PMI | Smaller upfront payment plus reduced monthly PMI to balance costs. |
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Buyers who want lower payments with modest cash |
| Lender-paid PMI (LPMI) | Lender covers PMI but raises your interest rate instead of a separate premium. |
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Buyers planning to sell/refi in a few years |
| Piggyback (80/10/10) | First mortgage at 80% + second mortgage to avoid PMI. |
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Strong-credit buyers comfortable with two loans |
1. Borrower-paid PMI
This monthly PMI plan is the most popular payment plan. The premium is added to your monthly mortgage payment and ends when you reach enough equity.
The following examples assume a $200,000 purchase with a 30-year term with a "fixed" interest rate. adjustable-rate mortgages have a higher cost factor.
Here's an example of the monthly PMI premium. Notice how the monthly premium decreases as the down payment increases.
| Down Payment Percentage | Loan Amount | Credit Score | Cost Factor | MONTHLY COST |
|---|---|---|---|---|
| 3% | 194,000 | 700 | 0.99% | 160.05 |
| 5% | 190,000 | 700 | 0.78% | 123.50 |
| 10% | 180,000 | 700 | 0.55% | 82.50 |
| 15% | 170,000 | 700 | 0.25% | 35.42 |
2. Single-premium PMI
The single premium PMI is a lump-sum payment at closing. The single premium option can also be financed in the mortgage. The single premium choice does not require additional payments to the private mortgage insurance company. The single premium can be used in conjunction with the seller paid closing costs.
The single premium is offered as refundable and non-refundable. The refundable option means that if the loan is paid off early, a percentage of the single premium will be refunded to the borrower. The non-refundable choice does not refund any unearned premium, if the loan is paid off early. The non-refundable single premium is less expensive.
| Down Payment Percentage | Loan Amount | Credit Score | Cost Factor | One time payment |
|---|---|---|---|---|
| 3% | 194,000 | 700 | 3.18% | 6,169.20 |
| 5% | 190,000 | 700 | 2.52% | 4,788.00 |
| 10% | 180,000 | 700 | 1.75% | 3,150.00 |
| 15% | 170,000 | 700 | 0.71% | 1,207.00 |
3. Split-premium PMI
The split premium option combines the monthly premium and the single premium plans. With the split premium selection, the borrower(s) pay a percentage of the mortgage insurance at settlement and a reduced amount each month. As the upfront percentage increases, the monthly payment decreases.
| Down Payment Percentage | Loan Amount | Credit Score | Upfront Premium Factor | Monthly premium factor | One time payment | Monthly payment |
|---|---|---|---|---|---|---|
| 3% | 194,000 | 700 | 0.50% | 1.06% | 970.00 | 171.37 |
| 5% | 190,000 | 700 | 0.50% | 0.76% | 950.00 | 120.33 |
| 10% | 180,000 | 700 | 0.50% | 0.47% | 900.00 | 70.50 |
| 15% | 170,000 | 700 | 0.50% | 0.10% | 850.00 | 14.17 |
4. Lender-paid mortgage insurance (LPMI)
With this choice, the lender pays the premium for the mortgage insurance. But there's a catch, the lender increases the interest rate to cover the mortgage insurance cost. You knew there had to be a catch.
Piggyback loan
There is one more way to avoid the dreaded mortgage insurance cost. It's called a piggyback loan. It can also be called a combo loan or tandem loan.
Regardless of the name, here's how a piggyback loan works: The loan amount is broken up into two loans. The 1st loan amount is 80% of the loan, and the balance (after the down payment) rides in as a 2nd mortgage. Is your head spinning? Here's an example. Let's assume that the purchase price is $200,000 with a 10% down payment. An example will help:
Sales price = $200,000
Less 10% = $20,000 (down payment)
Loan amount = $180,000
SALES PRICE = $200,000
1st mortgage - $200,000 X 80% = $160,000
2nd mortgage - $200,000 less $20,000 less $160,000 = $20,000 (2nd mortgage)
The second mortgage, usually an equity loan, is a tactic to reduce the overall cost.
Is this approach better than one of the traditional PMI plans? It might be. Ask the loan officer give you a comparison quote to determine which choice is beneficial.
How to get rid of PMI
The good news: PMI isn’t forever. Here's how you can get rid of it:
Request removal at 20% equity: Once your loan balance drops to 80% of the home’s original value, you can ask your lender to cancel PMI.
Automatic cancellation at 78%: Federal law requires lenders to cancel PMI automatically once your balance reaches 78% of the original value.
Early removal options: You may be able to request early cancellation if your home has increased in value and you can prove it with a new appraisal.
Is PMI automatically canceled once you are halfway through the loan’s term?
Yes. Your lender or servicer must end the PMI the month after you reach the midpoint of your loan’s amortization schedule. (This is true even if the principal balance has not reached 78 percent of the original value of your home.) The midpoint of your loan’s amortization schedule is halfway through the original full term of your loan. For 30-year loans, the midpoint is after 15 years have passed.
This standard for ending the PMI halfway through the loan’s original term is more likely to occur for people who have a mortgage with an interest-only period, principal forbearance, or a balloon payment. Keep in mind that you must be current on your monthly payments for termination to occur.
FAQ
How much does PMI cost?
Costs vary based on credit score, down payment, and loan size, but typically run 0.2%–2% of the loan amount annually.
How long do I have to pay PMI?
Until you reach 20% equity. It’s removed automatically at 78% LTV.
Who pays for PMI?
Usually the buyer, though sellers can sometimes contribute to closing costs, which may include prepaid premiums.
Can I avoid PMI?
Yes — by making a 20% down payment, using a piggyback loan, or choosing lender-paid PMI.