Private Mortgage Insurance (PMI): What It Is and When It Goes Away

If you’re putting down less than 20 percent on a conventional loan, there’s a good chance PMI is part of your monthly payment — and a lot of buyers don’t fully understand what it does or when it disappears. Here’s a clear explanation.

What PMI Actually Protects

Private mortgage insurance protects your lender, not you, in the event you default on your loan. Because a smaller down payment represents more risk to the lender, PMI is generally required on conventional loans with less than 20 percent down, and the cost is added to your monthly payment.

How Much PMI Typically Costs

PMI costs vary based on your credit score, loan amount, and down payment size, but generally range from a fraction of a percent to around 1 to 2 percent of your loan amount annually, divided into your monthly payment. A stronger credit score and larger down payment both tend to lower your PMI cost.

When PMI Automatically Ends

Under federal law, PMI on conventional loans must automatically terminate once your loan balance reaches 78 percent of the home’s original value, based on your original amortization schedule, provided you’re current on payments. You can also request PMI cancellation earlier, once you reach 80 percent loan-to-value, by contacting your servicer directly — this often requires you to request it rather than waiting for it to happen automatically.

How to Get There Faster

Making extra principal payments accelerates your path to that 80 percent threshold. If your home has appreciated significantly, a new appraisal may also demonstrate you’ve reached 80 percent loan-to-value sooner than your original schedule would suggest, though lenders have specific requirements for accepting this route.

FHA Loans Work Differently

FHA loans use mortgage insurance premiums rather than PMI, and depending on your down payment, this insurance may be required for the life of the loan rather than automatically canceling — a meaningful difference worth understanding when comparing FHA versus conventional financing.

If you want help understanding how PMI factors into your specific home search, I’m happy to connect you with a lender who can run your numbers. Reach me at 864.913.8295 or Ambur.Davis@Century21Blackwell.com.