Private Mortgage Insurance (PMI)
Private mortgage insurance (PMI) is a premium charged by lenders when a borrower puts less than 20% down on a conventional loan. PMI protects the lender — not the borrower — against default. It typically costs 0.5–1.5% of the loan balance annually.
A $360,000 loan at 0.85% PMI = $3,060/year or $255/month added to your payment.
PMI is required on conventional loans with a down payment below 20%. It is added to your monthly payment and can cost $100–$400/month on a typical home loan. FHA loans have a similar premium called MIP (mortgage insurance premium).
PMI is not permanent. Under the Homeowners Protection Act, lenders must automatically cancel PMI when your loan balance reaches 78% of the original purchase price (based on your payment schedule). You can request cancellation earlier once you reach 80% LTV.
To avoid PMI entirely, put 20% down, get a piggyback loan (80-10-10 structure), or choose a VA or USDA loan (both are PMI-free for qualifying borrowers).
Put this into practice with our free calculator:
Open calculator →Related terms
- Down Payment
- A down payment is the upfront cash you pay toward a home purchase. It equals the purchase price minus the loan amount. Most conventional loans require 3–20%; putting 20% down avoids private mortgage insurance (PMI).
- Loan-to-Value Ratio (LTV)
- The loan-to-value (LTV) ratio is the mortgage amount divided by the property's appraised value, expressed as a percentage. An LTV above 80% typically requires private mortgage insurance (PMI) in the US.
- Mortgage Payment
- A mortgage payment is the fixed monthly amount owed to a lender, covering principal and interest (P&I). It may also include escrow for property tax and homeowners insurance (PITI).