How PMI Works (and How to Get Rid of It)

Private mortgage insurance — PMI — is the cost most first-time buyers don't see coming. Here's exactly what it is, when it's required, and how to make it disappear.

What is PMI?

PMI is an insurance policy that protects the lender (not you) if you stop making payments on a low-down-payment loan. Lenders typically require it on conventional loans when your down payment is less than 20% of the home's value.

How much does PMI cost?

PMI premiums generally range from 0.3% to 1.5% of the original loan amount per year. On a $300,000 loan at 0.5% PMI, that's $1,500/year — about $125/month added to your mortgage payment.

Three ways to get rid of PMI

1. Reach 20% equity and request cancellation. Once your loan-to-value (LTV) ratio drops to 80%, you can request that your lender remove PMI in writing.
2. Wait for automatic termination. By federal law, lenders must automatically terminate PMI when your LTV reaches 78%, assuming you're current on payments.
3. Refinance. If your home has appreciated, refinancing can bring your LTV below 80% even if you haven't paid down enough principal yet.

Want to see how much PMI is adding to your payment? Plug your numbers into our free mortgage calculator — PMI is calculated automatically.