Mortgage Costs
Private Mortgage Insurance (PMI) Explained
How private mortgage insurance works on conventional loans, how it differs from FHA mortgage insurance, and when it can be removed.
Updated 2026-08-17| Applies to: Buyers making a smaller down payment on a conventional loan, or homeowners wondering how to remove existing mortgage insurance.
The short answer
Private mortgage insurance, or PMI, is typically required on conventional loans when the down payment is less than 20 percent, and it protects the lender, not the borrower, if the loan defaults. Unlike FHA mortgage insurance, PMI can often be removed once enough equity accumulates, either automatically or by borrower request, depending on the loan terms and lender policy.
What is PMI and why is it required?
PMI is insurance that lenders generally require on conventional loans when the down payment is below 20 percent of the home's value. It protects the lender against loss if the borrower defaults, and it allows lenders to offer financing to buyers with smaller down payments than they might otherwise approve. PMI does not protect the borrower and does not pay off the loan in the event of death or disability, which is a common misunderstanding.
How is PMI typically priced?
PMI cost generally depends on factors such as credit score, loan-to-value ratio, loan type, and coverage amount, and it is set by the mortgage insurance company underwriting the policy, not by Manny or the lender directly. It is usually paid as part of the monthly mortgage payment, though some lenders offer single-premium or lender-paid options. Because pricing varies by borrower profile and market conditions, a loan officer can provide an estimate specific to a given scenario rather than a general figure.
How is PMI different from FHA mortgage insurance?
| Feature | Conventional PMI | FHA MIP |
|---|---|---|
| Applies to | Conventional loans under 20% down | All FHA loans regardless of down payment |
| Removable? | Often yes, once sufficient equity is reached | Often stays for the life of the loan if down payment was under 10% |
| Upfront premium? | Usually no upfront premium | Upfront mortgage insurance premium is typically required |
| Who sets pricing | Private mortgage insurers | FHA / HUD |
How can PMI be removed?
- Automatic termination often occurs once the loan balance is scheduled to reach 78% of the original home value, based on the amortization schedule
- Borrower-requested cancellation may be possible once the balance reaches 80% of original value, subject to a good payment history and lender requirements
- A new appraisal showing increased home value may support an earlier removal request in some cases, subject to lender rules
- Refinancing into a new loan with at least 20% equity can eliminate PMI, though closing costs and rate changes should be weighed
Removal rules and timelines vary by lender and loan investor. Contact your loan servicer directly to confirm the process and required documentation for your loan.
Are there ways to avoid PMI from the start?
Putting down 20% or more on a conventional loan avoids PMI entirely. Some lenders also offer piggyback second-lien structures or lender-paid mortgage insurance arrangements that fold the cost into the interest rate instead of a separate monthly charge, which can make sense for some borrowers but should be compared carefully against standard PMI over the expected time in the home.
Common mistakes to avoid
- Assuming PMI protects the borrower if they lose income or pass away
- Not tracking loan-to-value progress to request PMI cancellation as soon as eligible
- Confusing FHA mortgage insurance premium rules with conventional PMI removal rules
- Choosing lender-paid mortgage insurance without comparing long-term cost to standard PMI
Related loan programs
Frequently Asked Questions
People also ask
Is APR always higher than the interest rate?
Usually APR is equal to or higher than the interest rate because it factors in certain additional costs, though the exact difference depends on the fees included in the calculation.
Read: How to Compare Mortgage Rates the Right WayCan I buy a home with no money down?
It is possible through VA loans for eligible veterans and service members, or USDA loans for eligible properties and household incomes, though qualification requirements apply.
Read: How Much Down Payment Do I Need to Buy a Home?Can I switch from FHA to conventional later?
Many borrowers refinance from FHA to conventional once they have enough equity and qualifying credit, which can remove ongoing mortgage insurance, though refinancing has its own costs to weigh.
Read: FHA vs Conventional Loans: How Do They Compare?Are discount points tax deductible?
Points may be deductible in some circumstances, but tax treatment depends on your situation, so it is worth checking with a tax professional.
Read: Mortgage Points, Fees, and Lender Credits: What Do They Mean?Are closing costs the same for every loan program?
No. Some programs have specific limits on certain fees or allow different levels of seller contribution, so costs can vary by program even for the same purchase price.
Read: How Much Will My Closing Costs Be?Are discount points tax deductible?
Points may be deductible in certain circumstances. Ask a tax professional about your situation.
Read: Lender Credits vs Discount PointsTerms used in this guide
- Private Mortgage Insurance
- Insurance that protects the lender when a conventional loan is made with less than 20% down. The borrower pays for it, monthly or through pricing adjustments.
Guidance by Manny
Manny Oloyede
Mortgage Broker | NMLS 1824463
Ultimate Mortgage Brokers LLC NMLS #2619461 | Licensed in OH | KY | NC | PA | SC | TN | TX
I have worked in mortgage lending since 2018 out of the Akron / Cuyahoga Falls Branch, helping buyers, homeowners and investors across Northeast Ohio and every state where I am licensed. These guides reflect the questions I answer most often, written the way I would explain them on a call.
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