PMI: What It Is, When It Drops
Private mortgage insurance rules, cost drivers, and how to remove it faster than the automatic schedule.
The Short Version
PMI (Private Mortgage Insurance) is required on conventional loans when your down payment is less than 20%. It's not permanent - it drops off automatically at 78% loan-to-value and can be removed on request at 80%. Your monthly PMI is set at loan origination based mostly on credit score and loan-to-value.
FHA's version is called MIP, and it behaves differently: on loans originated today with less than 10% down, MIP stays for the life of the loan. That's the single biggest reason to refinance out of FHA once you have 20% equity.
How PMI Is Priced
PMI premium is a small percentage of the loan amount annually, divided by 12 and added to your monthly payment. The rate depends on credit score, loan-to-value, loan term, and occupancy. Better credit + more down payment = lower PMI.
| 760+ credit, 5% down | ≈ $95–$115 / mo |
| 720–759 credit, 5% down | ≈ $130–$165 / mo |
| 680–719 credit, 5% down | ≈ $190–$240 / mo |
| 660–679 credit, 5% down | ≈ $260–$320 / mo |
| 760+ credit, 10% down | ≈ $65–$80 / mo |
| 760+ credit, 15% down | ≈ $30–$45 / mo |
The Four Ways to Structure PMI
'PMI' is a category, not a single product. There are four structures, and the right one depends on how long you plan to keep the loan.
- Borrower-Paid Monthly (BPMI): the default. Small monthly amount, cancellable at 80% LTV.
- Lender-Paid (LPMI): the lender absorbs PMI in exchange for a slightly higher rate (usually 0.25%–0.375% higher). Not cancellable - you refinance out of it.
- Single Premium: pay all PMI up front at closing. Best when you'll stay 5+ years and don't want a monthly hit.
- Split Premium: partial up-front payment and lower monthly. Middle ground.
LPMI often looks worse on paper because of the higher rate, but on short-hold loans (3–5 years) the total cost can be lower. If you might refinance or sell in the next few years, ask for both quotes side by side.
Removing PMI on Schedule
Two federal rules govern automatic PMI removal on conventional loans: PMI must be terminated automatically when the loan reaches 78% of the original property value based on the amortization schedule, and you can request removal at 80% LTV based on the original value. Both use original value, not current value.
That means paying down principal on schedule gets you there predictably. On a 30-year loan with 5% down, you typically reach 80% around year 10 based purely on amortization.
Removing PMI Early - the Two Paths
You don't have to wait for the automatic schedule. If your home has appreciated or you've paid extra principal, you can shortcut it.
- Path 1 - Extra principal payments: Pay down the balance to 80% of the original value and formally request cancellation. Lender confirms and removes PMI at the next servicing cycle.
- Path 2 - New appraisal: If the home has appreciated, request PMI removal based on current value. Most servicers require the loan to be at least 2 years old (5 years if you want to go below 75% LTV using current value), and you pay for the appraisal ($550–$800). If the appraisal supports it, PMI comes off.
- Path 3 - Refinance: If rates support it, refinancing into a new loan below 80% LTV eliminates PMI. Only makes sense if the refi passes its own break-even test.
FHA MIP: a Different Animal
FHA's Mortgage Insurance Premium (MIP) doesn't work like conventional PMI. There's an upfront 1.75% financed into the loan, plus annual MIP paid monthly. For loans with less than 10% down, MIP stays for the life of the loan - even at 60% LTV. For loans with 10% or more down, MIP falls off after 11 years.
This is the mechanic that drives many FHA borrowers to refinance into a conventional loan once they've built 20% equity. Even at a higher interest rate, dropping MIP entirely often wins on total monthly cost.