What Is PMI (Private Mortgage Insurance)?

PMI is an extra monthly charge on most conventional home loans when you put down less than 20%. It protects the lender, not you — but it can be removed once you own enough of your home. Here’s how it works and how to get rid of it.

By Bogdan · Updated

When you buy a home with less than 20% down, the lender takes more risk. PMI is the fee that covers that risk — and you’re the one who pays it.

Explain it like I’m 5

Imagine you borrow your friend’s expensive bike, but you can only leave a small deposit. Your friend gets nervous: what if you never bring it back? So they make you pay a little extra every week for a “just in case” promise from someone else.

That extra weekly fee is PMI. It doesn’t protect you at all — it protects your friend. Once you’ve paid back enough of the bike, the fee goes away.

See how PMI changes the home price you can afford with the house affordability calculator.

Worked example

You buy a $350,000 home with 10% down ($35,000) and borrow $315,000 at 6.5% for 30 years.

  • Principal and interest: $1,991 a month.
  • PMI at 0.5% a year: $315,000 × 0.005 ÷ 12 = $131.25 a month.
  • Your balance reaches 80% of the original value ($280,000) after about 8 years — you can ask to cancel PMI then.
  • It ends automatically at 78% ($273,000), after about 9 years — roughly $14,300 of PMI in total.

Extra principal payments get you there sooner. See how to pay off your mortgage early.

What affects your PMI rate

  • Credit score: higher scores pay much less.
  • Down payment: 15% down costs less than 5% down.
  • Loan type and term: fixed-rate and shorter loans are often cheaper.
  • Debt-to-income ratio.

Ways to avoid or remove PMI

  1. Put 20% down.
  2. Pay extra principal to reach 80% sooner, then ask to cancel.
  3. Get a new appraisal if your home’s value has risen — many lenders allow removal once you have enough equity (rules and waiting periods vary).
  4. Refinance once you have 20% equity, if rates make sense.
  5. VA loans for eligible service members and veterans have no monthly mortgage insurance.

Is paying PMI ever worth it?

Often, yes. Waiting years to save 20% can cost more than PMI if home prices and rents rise meanwhile. PMI is a cost of buying sooner, not a penalty — just make sure the total monthly payment still fits your budget. A common guide is the 28/36 rule.

Frequently asked questions

What is PMI on a mortgage?

Private mortgage insurance is a charge on conventional loans with less than 20% down. If you stop paying your mortgage, it repays part of the lender’s loss. You pay for it, but it only protects the lender.

How much does PMI cost?

Often about 0.3% to 1.5% of the loan amount per year, depending mostly on your credit score and down payment. At 0.5%, a $315,000 loan costs about $131 a month in PMI.

How do I get rid of PMI?

You can ask your lender to cancel it once your balance reaches 80% of the home’s original value, if you have a good payment history. It must end automatically at 78%. Some lenders also allow removal based on a new appraisal if your home has risen in value.

Can I avoid PMI with less than 20% down?

Sometimes. Options include VA loans (no PMI), lender-paid PMI (built into a higher rate), and ‘piggyback’ loans where a second loan covers part of the down payment. Each has trade-offs, so compare the total cost.

Is FHA mortgage insurance the same as PMI?

No. FHA loans have their own mortgage insurance (MIP), including an upfront charge. With less than 10% down it generally lasts for the life of the loan, so many borrowers refinance into a conventional loan later to drop it.

This article is for general education and is not financial, investment or tax advice. Rates, rules and limits change; check current terms with your bank or the IRS. See our disclaimer.