What Is Private Mortgage Insurance (PMI)?
Private Mortgage Insurance (PMI) is a lender-required insurance that protects them (not you) if you put less than 20% down on a conventional loan.
How Much Does PMI Cost?
PMI typically costs 0.5% to 1.5% of the loan amount per year. The exact rate depends on credit score, loan amount, and down payment.
| Loan Amount | PMI Rate | Monthly PMI Cost | Annual PMI Cost |
|---|---|---|---|
| $200,000 | 0.75% | $125 | $1,500 |
| $300,000 | 1.00% | $250 | $3,000 |
| $400,000 | 1.25% | $416 | $5,000 |
When Is PMI Required?
PMI is required when:
- ✅ You put less than 20% down on a conventional mortgage.
- ✅ You refinance with less than 20% equity.
- ✅ You choose a low down payment loan option.
How to Avoid PMI
Here’s how you can eliminate PMI and save money:
- 🏡 Put 20% down - This is the easiest way to avoid PMI.
- 📉 Use lender-paid PMI (LPMI) - Some lenders pay PMI in exchange for a higher interest rate.
- 🔄 Refinance when you reach 20% equity - You can remove PMI once you reach 80% loan-to-value (LTV).
- 📑 Request PMI cancellation - At 78% LTV, lenders must remove PMI by law.
PMI for Different Loan Types
Not all loan programs require PMI. Here’s how it compares:
| Loan Type | PMI Required? | How to Avoid It |
|---|---|---|
| Conventional Loan | Yes, if <20% down | Put 20% down or refinance later |
| FHA Loan | Yes (called MIP) | Refinance into a conventional loan |
| VA Loan | No PMI required | N/A |
| USDA Loan | No PMI, but has a guarantee fee | Refinance or pay off guarantee fee |
When Can You Remove PMI?
You can remove PMI when your loan balance reaches 80% of the home’s value. Here’s how to speed up PMI removal:
- 📈 Make extra mortgage payments to reduce loan balance faster.
- 🏡 Home appreciates in value? Get a new appraisal to prove you hit 20% equity.
- 🔄 Refinance your loan if rates drop and you have enough equity.
“Avoiding PMI can save thousands—consider a higher down payment or refinancing when possible.”
— Sarah Thompson, Mortgage Advisor
Frequently Asked Questions
Is PMI bad?
PMI isn’t always bad! It allows buyers to purchase a home sooner without waiting to save 20% down.
Can PMI be tax-deductible?
Yes! As of 2024, PMI payments may be deductible if you itemize taxes.
Can I negotiate PMI rates?
Yes! PMI costs vary by lender, so compare offers before choosing a loan.