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Mortgages & financing

Private Mortgage Insurance (PMI)

Also called PMI, mortgage insurance

In short

Private mortgage insurance (PMI) protects the lender, not the borrower, if a borrower defaults on a conventional loan. It is usually required when the down payment is less than 20% of the home's value.

Required when
Under 20% down (conventional)
Protects
The lender
Typical cost
About 0.3% to 1.5% a year
Removal
Possible at 20% equity

How PMI works

When your loan-to-value ratio is above 80%, conventional lenders typically require PMI. You usually pay it monthly as part of your mortgage payment, though some loans offer a one-time upfront premium or lender-paid PMI built into a higher rate. Cost depends on your credit score, down payment and loan type.

Removing PMI

Under federal law for most conventional loans, you can ask to cancel PMI once your balance reaches 80% of the home's original value, if you have a good payment history. It must end automatically at 78%. Growing home equity through rising values may let you remove it sooner with a new appraisal, subject to lender rules.

PMI vs. FHA mortgage insurance

FHA loans have their own mortgage insurance premium (MIP), with an upfront charge and an annual premium. Its rules for removal differ from PMI and, on many FHA loans, it lasts for the life of the loan unless you refinance.

The formula

Monthly PMI = Loan amount × Annual PMI rate12
Annual PMI rate
Set by the insurer from your credit score and down payment
Try it in the Mortgage Calculator →
Example

PMI on a 10% down purchase

A buyer purchases a $300,000 home with $30,000 down, borrowing $270,000 (90% LTV). With a PMI rate of 0.6% a year, PMI costs $1,620 a year, or $135 a month. Once the balance is paid down to $240,000 (80% of the original value), the buyer can request cancellation.

Frequently Asked Questions

Related terms

Down PaymentMortgages & financingA down payment is the part of a home's purchase price the buyer pays upfront in cash rather than borrowing. It is usually stated as a percentage of the price and is due at closing.Loan-to-Value Ratio (LTV)Mortgages & financingLoan-to-value ratio (LTV) compares the size of a mortgage with the property's value. A lower LTV means more equity and less risk for the lender, which often brings better loan terms.PITIMortgages & financingPITI stands for principal, interest, taxes and insurance, the four parts of a typical monthly mortgage payment. Lenders use it to judge whether a borrower can afford a home.Home EquityMortgages & financingHome equity is the portion of a property you own outright: its current market value minus everything owed on it. It grows as you pay down the loan and as the home's value rises.MortgageMortgages & financingA mortgage is a loan used to buy real estate, secured by the property itself. If the borrower stops paying, the lender can take the property through foreclosure to recover what is owed.FHA 203(k) LoanMortgages & financingAn FHA 203(k) loan is a government-insured mortgage that combines a home's purchase price and the cost of repairs into one loan. It lets owner-occupants buy and fix up homes that need work.RefinanceMortgages & financingTo refinance is to replace an existing mortgage with a new one, usually to get a lower rate, change the loan term, or take cash out of the home's equity.Debt-to-Income Ratio (DTI)Mortgages & financingDebt-to-income ratio (DTI) is the share of your gross monthly income that goes to debt payments. Lenders use it to decide how large a mortgage payment you can afford.

Learn more in the knowledge base

How Much House Can You Afford?Guide · 6 min readThe right price is the one you can pay every month without strain and still keep savings for repairs and emergencies. This guide shows how lenders measure affordability, what they leave out, and how to build a budget that works for you.How to Get Pre-Approved for a MortgageGuide · 7 min readA pre-approval tells you, and the sellers you make offers to, how much a lender is prepared to lend after checking your income, assets and credit. This guide explains how it differs from pre-qualification, what to gather, how to compare lenders and what can change the answer before closing.How to Finance a Foreclosure or Distressed PropertyGuide · 7 min readDistressed properties are harder to finance than move-in-ready homes. Condition, timing and the seller's terms all limit which loans will work. This guide matches financing options to each kind of distressed purchase and explains the trade-offs.
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Disclaimer: The information on this page is for general educational purposes only and is not legal, financial, tax or investment advice. Laws, lending rules and market conditions vary by state and change over time, and any figures shown are estimates. Before you buy, sell, finance or bid on a property, consult a qualified attorney, financial advisor, lender or licensed real estate professional about your situation.