What Is Mortgage Insurance (PMI)?
Private Mortgage Insurance, commonly known as PMI, is insurance that protects the lender — not you — in the event that you default on your mortgage loan. Despite protecting the lender, you as the borrower are the one who pays for it.
When Is PMI Required?
PMI is typically required when you put less than 20% down on a conventional mortgage. The lender sees a smaller down payment as higher risk, and requires PMI as protection against potential losses.
How Much Does PMI Cost?
PMI typically costs between 0.5% and 1.5% of your loan amount annually, depending on your credit score, loan size, and lender. On a $200,000 loan, that's roughly $1,000–$3,000 per year, or $83–$250 per month added to your payment.
How to Avoid PMI
- Put 20% or more down — The simplest way to avoid PMI entirely
- Lender-paid PMI (LPMI) — Lender covers PMI in exchange for a slightly higher interest rate
- Piggyback loan (80/10/10) — Take a second mortgage for 10% to avoid PMI on the first
- VA loan — Eligible veterans can get a zero-down loan with no PMI
- Some first-time buyer programs — Certain down payment assistance programs eliminate PMI requirements
When Does PMI Go Away?
Under the Homeowners Protection Act, you have the right to request PMI cancellation once your loan balance reaches 80% of the original purchase price. Lenders are required to automatically cancel it at 78%. You can also cancel sooner if your home has appreciated significantly — by ordering a new appraisal to demonstrate you've reached 20% equity.
Have questions about financing?
Lisa can connect you with her preferred mortgage partner who can walk you through all your options.
