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PMI Complete Guide: Costs, Cancellation, and When It's Worth It
PMI (Private Mortgage Insurance) required on conventional loans with < 20% down. Cost: 0.2-2% annually; most pay 0.5-1.5%. On $350K loan: $1,750-$5,250/year. Cancels at 78% LTV automatically (Homeowners Protection Act 1998) or 80% LTV on request. FHA MIP: very different — lasts life of loan if < 10% down payment. VA loans: no PMI (funding fee instead). USDA: 0.35% annual guarantee fee. Own Luxury Homes® 12-Point Agent Integrity Audit™.
PMI Complete Guide: What It Is, What It Costs, and How to Get Rid of It
PMI — private mortgage insurance — is a cost that surprises many first-time buyers at closing. It is required on conventional loans when your down payment is less than 20%. It protects the lender, not you. And it adds real money to your monthly payment. But it is not permanent, it is not the disaster some buyers fear, and in many cases paying PMI while buying now beats waiting years to save a 20% down payment. This guide covers everything: what PMI costs, when it automatically cancels, how to remove it early, and when it is actually worth it.
| Loan Type | Mortgage Insurance Type | Cost | How Long It Lasts |
|---|---|---|---|
| Conventional (< 20% down) | PMI (Private Mortgage Insurance) | 0.2–2% annually | Until 80% LTV (requestable) or 78% LTV (automatic) |
| FHA (any down payment) | MIP (Mortgage Insurance Premium) | 1.75% upfront + 0.15–0.75% annually | 11 years (10%+ down) or life of loan (< 10% down) |
| VA Loan | No PMI | VA Funding Fee: 1.25–3.3% one-time | N/A — no ongoing mortgage insurance |
| USDA Loan | Guarantee Fee | 0.35% annually | Life of loan (but low cost) |
The Most Important Thing Most Buyers Don't Know: PMI vs MIP Are Very Different
Conventional PMI can be cancelled once you reach 20% equity. FHA mortgage insurance (MIP) cannot be cancelled if your down payment was less than 10% — it lasts the life of the loan for FHA loans originated after June 2013. This means a buyer who chooses FHA over conventional because of the lower credit score threshold may pay mortgage insurance for the entire 30-year term, while a conventional borrower with PMI eliminates it in 7–10 years through normal amortization and/or appreciation. This distinction changes the math significantly for any buyer who is choosing between FHA and conventional. Understanding it before choosing a loan type is critical.
“PMI is one of the most misunderstood costs in home buying. I have had buyers who refused to purchase because they thought PMI was permanent and 'wasted money.' It is neither. PMI is temporary on conventional loans and the cost of eliminating it is simply building equity to 80% of the home's value. What I tell every buyer who is worried about PMI: the math of buying with PMI now and building equity is almost always better than renting for 2-4 more years while saving for a 20% down payment. But the math changes dramatically if you choose FHA — where mortgage insurance can last the life of the loan. Know your loan type before you decide how much PMI matters to your decision.”
— Ryan Brown, Principal Broker & CEO, Own Luxury Homes®
What is PMI and why is it required?
PMI (Private Mortgage Insurance) is insurance that protects your lender — not you — if you default on a conventional mortgage with less than 20% down payment. Lenders require it because lower down payments create higher risk that the sale proceeds might not cover the outstanding loan balance if they need to foreclose. PMI is paid by the borrower (you) but the benefit goes to the lender. It typically costs 0.2–2% of the loan amount annually and is added to your monthly mortgage payment until you reach 80% loan-to-value (LTV). Under the Homeowners Protection Act of 1998, PMI must automatically cancel when your loan balance reaches 78% of the original purchase price.
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"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)