Own Luxury Homes®
PMI Explained: What It Is and How to Remove It
PMI: conventional <20% down; 0.4–0.8%/yr typical; protects lender, not you. 4 removal methods: (1) automatic at 78% LTV, (2) written request at 80% LTV, (3) new appraisal if home appreciated (2+ yr loan), (4) refinance with 20%+ equity. PMI vs FHA MIP: PMI removable; FHA MIP on <10% down permanent. 680+ credit: conventional + PMI saves vs FHA + MIP over typical hold. Own Luxury Homes® 12-Point Agent Integrity Audit™ — request removal at 82% LTV.
PMI Explained: What Private Mortgage Insurance Is, What It Costs, and 4 Ways to Remove It
Private mortgage insurance is one of the most misunderstood monthly costs in homeownership. It protects the lender if you default — not you. You pay it, the lender is protected by it. It is required on conventional loans with less than 20% down and costs $100–$300+ per month depending on loan size and credit score. The most important thing to know about PMI: it is removable. Unlike FHA MIP (which is permanent in most cases), conventional PMI has federally mandated removal rules that most homeowners don't know how to use.
What PMI Costs: The Variables That Determine Your Rate
| Credit Score | LTV (5% down) | Approx PMI Rate | Monthly Cost ($350K loan) | ||||||
|---|---|---|---|---|---|---|---|---|---|
| 760+ | 95% | 0.20–0.35% | $58–$102/mo | ||||||
| 720–759 | 95% | 0.35–0.50% | $102–$146/mo | ||||||
| 680–719 | 95% | 0.50–0.70% | $146–$204/mo | ||||||
| 640–679 | 95% | 0.70–1.00% | $204–$292/mo | ||||||
| 620–639 | 95% | 1.00–1.50% | $292–$438/mo | ||||||
| PMI rate improves with both higher credit scores and lower LTV ratios. A 10% down payment instead of 5% meaningfully reduces PMI cost. A 20%+ down payment eliminates it entirely. | |||||||||
PMI vs FHA MIP: The Critical Difference
| Feature | Conventional PMI | FHA MIP | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Who requires it | Conventional loans with <20% down | All FHA loans regardless of down payment | |||||||
| Upfront cost | None | 1.75% of loan amount at closing (rollable) | |||||||
| Monthly cost | 0.2–2.0% annually; varies by credit/LTV | 0.55% annually on <10% down (most common case) | |||||||
| Can it be removed? | YES — at 80% LTV (request) or 78% LTV (automatic) | NO — on <10% down loans originated after June 2013; lasts for life of loan | |||||||
| How to end it | 4 methods (see below) | Refinance into conventional; no other option | |||||||
| Benefit to buyer | None — protects lender only | None — protects lender only | |||||||
| This difference is why borrowers with 680+ credit almost always benefit from conventional + PMI over FHA + MIP. The PMI you can eliminate in 8 years costs far less than MIP that runs for 30 years. | |||||||||
The 4 Ways to Remove Conventional PMI
Method 1: Automatic Cancellation (Homeowners Protection Act)
Federal law (the Homeowners Protection Act of 1998) requires your lender to automatically cancel PMI when your loan balance reaches 78% of the ORIGINAL purchase price based on your amortization schedule. This is not negotiable; it's the law. You don't have to request it. On a 5% down payment, 30-year conventional loan: automatic cancellation typically occurs around year 10–12.
Method 2: Borrower Request at 80% LTV
Once your balance reaches 80% of the ORIGINAL purchase price, you can request PMI cancellation in writing. Requirements: your loan must be current; you must have a good payment history (no 30-day late payments in recent 12 months); your lender may require a new appraisal. This can save you 1–2 years of PMI payments vs waiting for the automatic 78% cancellation.
Method 3: New Appraisal Based on Appreciated Value
If your home has appreciated significantly since purchase, you may reach 80% LTV on current value faster than scheduled payments would achieve it. Most lenders allow PMI removal based on current appraised value if the loan is at least 2 years old (some require 5 years for substantial appreciation claims). Order a new appraisal ($500–$800); if LTV is under 80%, submit a written cancellation request. In markets that appreciated 20%+ since your purchase, this method can eliminate PMI years ahead of schedule.
Method 4: Refinance
If your home has 20%+ equity and rates have improved, refinancing produces a new loan with no PMI requirement. Full refinance costs (2–5%) apply. Only makes financial sense if the rate improvement or PMI elimination produces enough monthly savings to justify the closing costs.
PMI Removal: Step-by-Step Process
| Step | Action | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| 1. Track your balance vs original purchase price | Check your mortgage statement monthly; note when balance approaches 82–80% of original price | ||||||||
| 2. Write a formal cancellation request | Contact your servicer in writing (not just by phone); reference the Homeowners Protection Act | ||||||||
| 3. Order an appraisal if needed | Servicer may require a current appraisal at your expense ($500–$800); use an appraiser from their approved list | ||||||||
| 4. Confirm removal in writing | Get written confirmation that PMI has been cancelled; verify it disappears from your next statement | ||||||||
| If your servicer denies a legitimate cancellation request, contact the Consumer Financial Protection Bureau (CFPB) at consumerfinance.gov. | |||||||||
PMI on Investment Properties and Second Homes
PMI on investment properties and second homes works differently: higher rates, stricter LTV requirements, and some lenders require 20%+ down to avoid PMI entirely on non-primary residences. On investment properties: 15–25% down payment typically required; PMI, if available, is significantly more expensive than on a primary residence. Most investors avoid PMI through higher down payments or DSCR loans that don't require it.
“The PMI conversation I have with buyers starts with the credit score and the expected hold. If your credit is 720+ and you plan to be in the home 7+ years, PMI is a cost of entry, not a permanent penalty. It comes off at 80% LTV. Mark a calendar reminder for when you hit 82% — that's when you start the removal process. The buyers who pay PMI for 12 years when they could have removed it at year 8 are the ones who didn't know about the written cancellation request. Now you know.”
— Ryan Brown, Principal Broker & CEO, Own Luxury Homes®
What is PMI (private mortgage insurance)?
Insurance required on conventional loans with less than 20% down. Protects the LENDER against default loss; you pay it but don't benefit from it. Cost: 0.2–2.0% of loan annually (0.4–0.8% most common). Unlike FHA MIP: conventional PMI is removable once you reach 20% equity.
How do I get rid of PMI?
4 methods: (1) Wait for automatic cancellation at 78% LTV (HPA requires this). (2) Request cancellation in writing at 80% LTV (saves 1–2 years vs waiting). (3) Get a new appraisal showing 80% LTV based on appreciated value (requires 2+ year loan age for most lenders). (4) Refinance when you have 20%+ equity. Always request in writing; servicers are required by law to cancel.
How much does PMI cost per month?
Depends on credit score and LTV. Typical range: $100–$300/month on a $350,000 loan. 760+ credit at 5% down: ~$58–$102/month. 680–719 credit at 5% down: ~$146–$204/month. 620–639 credit: ~$292–$438/month. PMI cost drops as LTV decreases; 10% down is meaningfully cheaper than 5% down.
Is PMI the same as FHA mortgage insurance?
No. PMI is on conventional loans; FHA has MIP (mortgage insurance premium). Conventional PMI: no upfront cost; 0.4–0.8% annually; REMOVABLE at 80% LTV. FHA MIP: 1.75% upfront + 0.55% annually; NOT REMOVABLE on <10% down loans post-June 2013. FHA MIP is permanent; conventional PMI is not. This difference is why 680+ credit borrowers usually save money with conventional + PMI.
Own Luxury Homes® — mark the calendar when you hit 82% LTV. 12-Point Agent Integrity Audit™. Talk to a specialist ›
"The introduction Own Luxury Homes® makes is to a specialist with documented closing history in your specific market — not the county, not the metro, the submarket you're actually selling or buying in. That's the standard we verify before your name goes anywhere."
— Ryan Brown, Principal Broker & CEO, Own Luxury Homes® (FL License BK3626873)