What Is PMI?

What Is PMI?

PMI stands for private mortgage insurance. It protects the lender -- not the borrower -- if the borrower defaults on the loan. PMI is required on conventional loans when the down payment is less than 20%, meaning the loan-to-value ratio exceeds 80%.

How Much Does PMI Cost?

PMI typically costs between 0.5% and 1.5% of the loan amount per year, charged as a monthly premium. On a $350,000 loan, PMI might cost between $146 and $438 per month. The exact rate depends on your credit score, loan-to-value ratio, and the insurer's pricing.

When Does PMI Go Away?

Under the Homeowners Protection Act of 1998, lenders must automatically cancel PMI when your loan balance reaches 78% of the original purchase price, based on the original amortization schedule. You can request cancellation earlier when your balance reaches 80% LTV, based on the original value or a new appraisal showing increased value.

FHA Mortgage Insurance vs. PMI

FHA loans require mortgage insurance premium (MIP) rather than PMI. For FHA loans with a down payment below 10%, MIP stays for the life of the loan -- unlike conventional PMI, it does not cancel automatically at 80% LTV. This is a key reason some borrowers choose conventional loans over FHA when they qualify.