PMI Explained: What It Costs and How to Remove It Early

Put down less than 20% on a conventional loan and you will meet PMI — Private Mortgage Insurance. It protects the lender, not you, yet you pay for it every single month. The good news: unlike many costs in a mortgage, PMI is removable, sometimes years before the bank would ever tell you. This guide covers what it really costs, exactly when it must disappear, and the levers that speed things up.

What PMI Actually Costs

Annual PMI premiums typically run 0.3% to 0.7% of the original loan amount, divided into monthly installments:

Your credit score moves this number more than anything else: a 760+ borrower might pay 0.25%, while a 660 borrower pays closer to 0.8% for the identical loan.

The Worked Example: 10% Down on a $350,000 Home

• Down payment: $35,000 (10%)
• Loan: $315,000 at 6.5%, 30-year fixed → P&I = $1,991.01/month
• PMI at 0.5%: $131.25/month
• Total payment with PMI: $2,122.26 — PMI adds 6.6%

When Does It Disappear?

PMI's trigger point is equity: you need the balance at or below 80% of the home's value — here, $280,000. On the standard amortization schedule, the balance crosses $280,000 in month 95 (just under 8 years). By law (Homeowners Protection Act):

• You may request cancellation at 80% LTV (month ~95 here).
• The servicer must auto-cancel at 78% of the original price on its scheduled date even if you never ask.
• FHA loans do not follow these rules — see the FAQ below.

Three Ways to Kill PMI Years Early

1. Extra principal payments. Adding $200/month to the example above reaches the 80% line several years sooner. Every extra dollar works twice: shrinking interest today and ending the $131 monthly fee sooner.
2. A new appraisal on appreciation. If local prices rose 15–20% since purchase, your current LTV may already be under 80%. Many lenders accept a fresh appraisal as evidence — costing a few hundred dollars to potentially save $1,500+ per year.
3. Targeted improvements. Kitchen refreshes, curb appeal, or finishing usable space can lift appraised value directly toward the same goal — but get realistic about cost versus the value gain first.

One warning: lenders usually require the account be current and may want 2+ years of history for appreciation-based removal. Ask for your lender's written policy up front.

Avoiding PMI From Day One (Without 20% Down)

• Piggyback loan (80/10/10). A first mortgage at 80% LTV plus a smaller HELOC-style second loan covering part of the remainder. Sometimes cheaper than PMI, sometimes not — compare total payments carefully.
• Lender-paid PMI (LPMI). The lender bundles the insurance cost into a slightly higher rate instead of a separate fee. It sounds cleaner but cannot be canceled later — run both scenarios through a calculator before choosing.
• VA loans have no ongoing mortgage insurance at all (they use a one-time funding fee instead).

Frequently Asked Questions