What Is Private Mortgage Insurance and When Do You Pay It?

Private mortgage insurance, or PMI, is a monthly fee some homebuyers pay on top of their regular mortgage payment. You pay it when you take out a conventional loan and put down less than 20% of the home's price. The money does not protect you. It protects the lender if you stop paying.

PMI usually shows up inside your monthly payment, and it can be removed later once you build enough equity. The Consumer Financial Protection Bureau publishes a plain-language overview of the rule, and the Freddie Mac homebuyer blog explains how it fits into a typical loan. This guide walks through what PMI is, when you pay it, and how it ends.

What PMI actually is

PMI is an insurance policy your lender arranges through a private insurer. You do not shop for it or pick the provider. It gets attached to your loan at closing whenever your loan-to-value ratio (LTV) is above 80%. LTV is the size of your loan divided by the home's value. Put 10% down and your LTV is 90%, so PMI applies. Put 20% down and your LTV is 80%, which is the standard cutoff where PMI stops being required.

If you default and the lender forecloses, the PMI policy pays the insurer's claim to the lender to cover part of the loss. That is why lenders charge it: a borrower with little equity is statistically more likely to walk away, and the lender wants a cushion. The CFPB notes that PMI is different from homeowners insurance, which covers damage to the property itself.

PMI applies only to conventional loans. FHA loans use a similar but separate charge called a mortgage insurance premium, or MIP, and it works under different rules. VA and USDA loans have their own funding fees. For this guide, we stick to conventional PMI, which is the most common version.

When you pay it and how it shows up

You pay PMI from the first mortgage payment until one of three things happens: you reach 20% equity and ask for cancellation, your balance drops to 78% of the original value and the lender cancels it automatically, or you refinance into a loan without it. Until then, it is part of your monthly bill.

Most borrowers pay PMI monthly through an escrow account, the same bucket that holds property taxes and homeowners insurance. Your lender collects a slice each month and forwards the premium to the insurer. Some loans let you pay the whole premium up front at closing as a lump sum, and some use a split structure with a smaller up-front piece plus a monthly piece. The Rocket Mortgage explainer calls these borrower-paid and lender-paid versions, and they behave differently. With lender-paid PMI, the lender covers the policy and charges you a higher interest rate instead, and you generally cannot cancel it later because it was paid up front.

PMI is not the same as your principal and interest. It is an extra line item. If you want to see how the whole payment stacks up, the mortgage calculator lets you plug in a loan amount and term, and the home affordability calculator shows how a down payment changes the picture.

A worked example: Maya buys a $320,000 house

Maya is a first-time buyer. She has $32,000 saved for a down payment, which is 10% of a $320,000 home. Her loan is $288,000. Because her LTV is 90%, her lender requires PMI. Her credit score is good, so the insurer quotes her an annual PMI rate of 0.6% of the loan amount.

Step 1: annual PMI = $288,000 x 0.006 = $1,728. Step 2: monthly PMI = $1,728 / 12 = $144. Step 3: her base principal-and-interest payment on a 30-year loan at 6.5% is about $1,820. Add $144 and her payment is roughly $1,964 before taxes and homeowners insurance.

Now the removal math. Maya needs her loan balance to fall to 80% of the original $320,000, which is $256,000. She starts at $288,000, so she needs to knock off $32,000 of principal. On a 30-year schedule, that takes roughly seven to eight years of regular payments, though extra principal payments speed it up. Once she hits 80% LTV she can request cancellation in writing, and at 78% the lender must cancel it automatically. The Britannica Money overview lays out both thresholds.

How much PMI costs and what moves the number

PMI is priced as an annual percentage of your loan amount, then divided into monthly chunks. Freddie Mac's guide puts the typical range at roughly $30 to $70 per month for every $100,000 borrowed. On a $288,000 loan, that is about $86 to $202 per month. The exact rate depends on your credit score, your down payment size, your LTV, the loan type, and the interest rate on the loan.

A bigger down payment lowers the LTV and usually lowers the PMI rate. A higher credit score does the same. Two buyers with the same loan amount can pay very different PMI amounts for that reason. If you are comparing loan offers, ask each lender for the PMI quote in writing so you can see the actual number rather than a generic estimate.

What people get wrong about PMI

• Thinking PMI protects them. It does not. If you default, the insurer pays the lender, not you. Your credit still takes the hit and you can still lose the home. The CFPB is clear that PMI benefits the lender.
• Assuming PMI lasts the whole loan. On conventional loans it does not. It ends at 80% LTV on request and at 78% automatically. FHA MIP is the one that often lasts the life of the loan, which is a different product.
• Waiting for the lender to remove it. Automatic removal only kicks in at 78%. If you have reached 80% and want it gone sooner, you have to ask in writing and be current on payments.
• Confusing lender-paid PMI with borrower-paid PMI. With lender-paid, you trade a lower up-front cost for a higher interest rate, and you cannot cancel the PMI later. The two structures are not interchangeable.

How PMI ends

There are four common paths off PMI. You can request cancellation once your balance hits 80% of the original value. You can wait for automatic termination at 78%. You can refinance into a new loan that does not carry PMI, though you pay closing costs and usually need at least two years of seasoning on the current loan. Or you can pay down principal faster, which shortens the timeline. A mortgage refinance calculator can show how a new loan changes the monthly number.

If your home value rises, an appraisal can also help. Lenders typically allow a cancellation request based on a new appraisal once you have owned the home for at least two years, and the balance must be no more than 75% of the new value in that window. After five years, the threshold loosens to 80%. That path matters in markets where values climb faster than your balance falls.

Where this leaves you

PMI is a real cost, but it is also the reason many buyers can purchase with less than 20% down. It is temporary on conventional loans, it is tied to your LTV, and it disappears once you build enough equity. Knowing the two thresholds, 80% and 78%, and knowing whether your loan uses borrower-paid or lender-paid PMI, tells you most of what you need to plan around it. If you want to see how different down payments change the math, run the numbers in the mortgage calculator and compare the monthly totals side by side.