Private Mortgage Insurance (PMI)
PMI protects the lender — not you — if you default. It’s required on conventional loans when your down payment is less than 20% of the home value. The monthly cost is typically 0.3%–1.5% of the loan balance per year, depending on your LTV and credit score.
LTV & PMI Rate Reference
| LTV Range | Down Payment | Annual PMI Rate | Notes |
|---|---|---|---|
| Below 80% | ≥20% | No PMI | No PMI required |
| 80.1–85% | 15–19.9% | 0.3–0.6% | Good credit gets lower rate |
| 85.1–90% | 10–14.9% | 0.5–1.0% | Most common purchase scenario |
| 90.1–95% | 5–9.9% | 0.8–1.2% | Common for first-time buyers |
| 95.1–100% | 0–4.9% | 1.0–1.5% | Credit score below 620 may be declined |
Three Ways to Remove PMI
- Automatic cancellation: Federal law (HPA) requires lenders to cancel PMI when LTV reaches 78% based on original schedule
- Request at 80% LTV: Ask your lender in writing once your balance drops to 80% of original value (or sooner if appreciation occurred)
- Refinance: If your home’s value has risen, refinance at below 80% LTV to eliminate PMI permanently
PMI vs FHA MIP
FHA loans charge a Mortgage Insurance Premium (MIP) regardless of LTV: 1.75% upfront + 0.55%/year ongoing. If you put down less than 10%, MIP lasts the entire loan term — you can’t cancel it. Conventional PMI, by contrast, disappears once you reach 20% equity.
Frequently Asked Questions
How is PMI calculated?
Multiply the loan balance by the annual PMI rate, then divide by 12. Example: $280,000 loan at 0.6% PMI = $1,680/year = $140/month.
Is PMI tax-deductible?
The PMI deduction has expired and been reinstated multiple times. As of 2024, it’s not available. Check IRS Publication 936 for the latest status each tax year.
Can I pay PMI upfront instead of monthly?
Yes — some lenders offer single-premium PMI paid at closing. It costs more upfront but eliminates monthly PMI. Lender-paid PMI (LPMI) builds the cost into a slightly higher interest rate.