What a PMI payment is and why your lender requires it

A PMI payment is a monthly charge added to your mortgage bill when you put down less than 20 percent on a home purchase. The lender requires it because a smaller down payment means they carry more risk — if you stop paying and they foreclose, they may not recover the full loan amount when they sell the house. PMI protects the lender, not you, but you pay for it.

The payment sits between your principal and interest on one line of your mortgage statement, or sometimes as a separate charge. It does not build equity in your home. Once you reach 20 percent equity through a combination of down payment and principal paydown, you can request to have it removed.

Key Takeaways

  • PMI is required when your down payment is less than 20 percent, and the cost depends on your loan amount, credit score, and the size of your down payment.
  • A typical PMI payment ranges from 0.3 to 1.5 percent of your original loan amount per year, divided into monthly installments.
  • PMI can be removed once you reach 20 percent equity in the home, either through principal paydown or a home value increase.
  • The exact removal process depends on your loan type — conventional loans have automatic removal rules, while FHA and VA loans have different timelines.
  • Paying PMI does not mean you cannot refinance or sell; it straightforward means the cost is part of your monthly obligation until removal conditions are met.

How much PMI costs and what affects the amount

PMI is calculated as a percentage of your original loan amount and paid monthly. If you borrowed $300,000 with a PMI rate of 0.75 percent per year, your annual PMI would be $2,250, or about $188 per month. The rate itself — the percentage charged — varies based on three main factors: how much you put down, your credit score, and the type of loan.

A 10 percent down payment typically costs more in PMI than a 15 percent down payment on the same house, because the lender's risk is higher. A credit score of 620 will draw a higher PMI rate than a score of 740. Some loan programs, like FHA loans, have fixed PMI rates set by federal rules, while conventional loans let the lender set the rate based on risk assessment.

Your lender will quote the PMI rate before you close. It appears on your Loan Estimate as a line item, usually labeled "Mortgage Insurance" or "PMI." Ask your lender for the annual percentage so you can calculate the monthly cost yourself and verify it matches what appears on your first statement.

The difference between upfront PMI and monthly PMI

Some loans charge PMI in two pieces: an upfront payment at closing, and then monthly payments for years. Upfront PMI is typically 1 to 2 percent of your loan amount, paid as a lump sum or rolled into your loan balance. Monthly PMI is the ongoing charge that appears on your bill.

FHA loans almost always include both. A conventional loan may have only monthly PMI, or upfront plus monthly, depending on the lender and your situation. If the upfront portion is rolled into your loan balance rather than paid at closing, you will pay interest on it for the life of the loan — so a $3,000 upfront PMI charge becomes $4,500 or more by the time you pay it off, depending on your interest rate and loan term.

Ask your lender to show you the total cost of PMI over the life of the loan, not just the monthly payment. This number changes if you plan to refinance or pay off early, but it gives you a real sense of what PMI will cost you.

When PMI is automatically removed from your mortgage

On a conventional loan, PMI is automatically removed when you reach 22 percent equity in the home, as long as you are current on payments. This is called the automatic termination date. Your lender is required by federal law to remove it at that point without you having to ask.

The 22 percent threshold accounts for the fact that home values can drop — the lender waits until you have a cushion above the 20 percent mark. Equity is calculated based on your original purchase price, not current market value, so if your home has appreciated significantly, you may reach 22 percent equity faster than you expect.

FHA loans work differently. PMI on an FHA loan cannot be removed until you have paid the loan for 11 years (if your down payment was 10 percent or more) or for the life of the loan (if your down payment was less than 10 percent). VA loans do not require PMI at all, even with zero down.

How to request early removal of PMI

You can request PMI removal before the automatic termination date if you have reached 20 percent equity and your loan allows it. Contact your loan servicer — the company that collects your monthly payment — and ask for a PMI removal request form. Some servicers let you request it online through your account portal.

The servicer will typically order an appraisal to confirm your home's current value. If the appraisal shows you have at least 20 percent equity, they will remove PMI. If it shows you do not, you will have to wait and request again later. You pay for the appraisal, which usually costs $300 to $500.

Timing matters. If you are close to 20 percent equity, waiting a few months for more principal paydown may be cheaper than paying for an appraisal that comes back just short. Some borrowers refinance instead, which removes PMI automatically if the new loan amount is 80 percent or less of the home's current value — but refinancing has its own costs and closing timeline.

PMI on different loan types

Conventional loans are the most flexible. PMI can be removed at 20 percent equity, and the rate is set by the lender based on your credit and down payment size. You have the most control over when and how to remove it.

FHA loans require mortgage insurance no matter what, and the timeline is longer. The upfront mortgage insurance premium (UFMIP) is 1.75 percent of the loan amount, and annual mortgage insurance premiums (MIP) run from 0.55 to 0.8 percent depending on your down payment and loan term. If you put down less than 10 percent, you pay MIP for the entire 30-year loan. If you put down 10 percent or more, MIP drops off after 11 years of payments.

VA loans do not require PMI. Instead, they charge a one-time funding fee (0.5 to 3.3 percent depending on down payment and whether you are a first-time VA borrower) that can be rolled into the loan. This is usually cheaper than PMI over time, which is one reason VA loans are valuable for may be able to access borrowers.

What happens to PMI if you refinance or sell

If you refinance your mortgage, the new loan is a separate transaction. If you refinance into a loan amount that is 80 percent or less of your home's current appraised value, you will not need PMI on the new loan. If you refinance for a higher amount or your home value has not appreciated enough, the new loan will require PMI again, and you will start the removal timeline over.

If you sell the house, PMI ends on the day you close the sale. The proceeds from the sale pay off the old loan, and PMI is no longer owed. You do not get a refund of PMI you have already paid — it is gone. This is one reason some borrowers choose to pay down principal aggressively in the early years: every dollar of principal paid is a dollar toward removing PMI.

Frequently Asked Questions

Can I avoid PMI by putting down 19 percent instead of 20 percent?

No. PMI is required if your down payment is less than 20 percent. Some borrowers use a second mortgage or home equity loan to reach 20 percent down, which avoids PMI but creates a different monthly payment. This strategy is called "piggyback financing" and has its own costs and risks.

Does PMI go down over time as I pay off my loan?

No. The PMI rate and monthly payment stay the same throughout the loan, even as your equity grows. The payment does not decrease — it straightforward stops once you reach 20 percent equity and request removal, or when the automatic termination date arrives.

What if my home value drops and I owe more than it is worth?

PMI does not protect you in this situation. If your home value falls below your loan balance, you are underwater, and PMI still applies. You cannot remove it until your equity recovers or you refinance into a lower loan amount. This is why PMI protects the lender, not the borrower.

Can I deduct PMI from my taxes?

PMI paid on loans taken out after 2006 may be tax-deductible under certain income limits, but the rules change yearly and vary by state. Consult a tax professional to determine whether your PMI qualifies. This deduction is different from mortgage interest, which has its own rules.

What if my lender does not remove PMI on the automatic termination date?

Contact your servicer when ready and request written confirmation of the removal. Federal law requires automatic removal at 22 percent equity on conventional loans. If your servicer refuses, file a complaint with the Consumer Financial Protection Bureau (CFPB) or your state's banking regulator.