Mortgage Insurance Explained
If you put down less than 20%, you'll almost certainly pay mortgage insurance. Here's what PMI is, how much it costs, exactly when it goes away, and how FHA's version (MIP) works differently. Start with a quick estimate of your monthly cost.
Estimate Your Monthly PMI Cost
Enter your loan amount to see a low, typical, and high estimate of your monthly private mortgage insurance, based on the standard 0.5%–1.5% annual rate range.
Estimated monthly PMI = loan amount × annual rate (0.5%–1.5%) ÷ 12.
Estimated Monthly PMI (typical, 1.0%)
$250
About $3,000 per year until you reach 20% equity
Low (0.5%)
$125
/mo
Typical (1.0%)
$250
/mo
High (1.5%)
$375
/mo
This is a quick estimate. For your exact cost, the cancellation timeline, and the total PMI you'll pay before it drops off, use the full PMI calculator.
What is private mortgage insurance?
Private mortgage insurance (PMI) is a policy that conventional lenders require when your down payment is less than 20% of the home's price — that is, when your loan-to-value (LTV) ratio is above 80%. A smaller down payment is considered higher risk, so the lender buys insurance, at your expense, that reimburses them if you default. It offers you no protection at all.
The trade-off is worth it for many buyers: PMI lets you get into a home years earlier than you could if you had to save a full 20% down. Because the premium is based on your loan balance, it's a temporary cost that ends once you build enough equity — unlike interest, which you pay for the whole loan.
PMI applies to conventional loans. FHA loans use a different program called MIP, and VA loans require no mortgage insurance at all. See how the full down-payment and affordability picture fits together with our home affordability calculator.
How much does PMI cost?
PMI typically costs between 0.5% and 1.5% of the loan amount per year, billed in twelve monthly installments alongside your mortgage payment. The exact rate depends on three things:
- Credit score — higher scores get meaningfully lower PMI rates.
- Loan-to-value ratio — the smaller your down payment, the higher the rate.
- Loan type and term — some loan structures and longer terms carry higher premiums.
On a $300,000 loan, that range works out to roughly $125 per month at the low end and $375 at the high end, with many borrowers landing near $250. Use the estimator above for a quick figure, or the full PMI calculator to see your total PMI cost and the exact month it drops off.
When does PMI go away?
On a conventional loan, the federal Homeowners Protection Act gives you two milestones, both measured against the home's original value:
- 80% LTV — you can request cancellation. Once your balance reaches 80% of the original value, you can ask your lender in writing to remove PMI.
- 78% LTV — automatic termination. Your lender must cancel PMI automatically once the balance hits 78%, as long as your payments are current.
PMI also ends automatically at the loan's midpoint regardless of your balance. You can reach the 80% threshold sooner by making extra principal payments, or by requesting a new appraisal if your home has appreciated. The PMI calculator shows the exact month each threshold is reached for your loan.
PMI vs MIP (FHA)
"Mortgage insurance" means something different depending on your loan. Conventional loans charge PMI; FHA loans charge a mortgage insurance premium (MIP). The programs look similar but differ in one crucial way — whether the insurance ever goes away.
- Conventional PMI — a single annual premium (0.5%–1.5%) that cancels automatically at 78% LTV. No upfront fee.
- FHA MIP — a 1.75% upfront premium (UFMIP) paid at closing, plus an annual MIP. With less than 10% down, that annual MIP lasts the life of the loan; with 10% or more down, it drops off after 11 years.
Because FHA MIP doesn't cancel on its own for most borrowers, the common exit is to refinance into a conventional loan once you have 20% equity. For strong-credit buyers, conventional with cancellable PMI is often cheaper overall; FHA tends to win for lower credit scores or very small down payments. Run the numbers with the FHA loan calculator, which includes full UFMIP and MIP math.
Frequently Asked Questions
What is PMI?
PMI stands for private mortgage insurance. It's a policy conventional lenders require when you put down less than 20% on a home. It protects the lender — not you — if you stop making payments. In exchange, it lets you buy with a smaller down payment instead of waiting to save a full 20%. PMI is added to your monthly mortgage payment and comes off once you build 20% equity.
How much is mortgage insurance per month?
Conventional PMI typically runs 0.5% to 1.5% of the loan amount per year, split into twelve monthly payments. On a $300,000 loan that's roughly $125 to $375 a month; a common mid-range figure is about $250. Your exact rate depends on your credit score, loan-to-value ratio, and loan type — higher credit and a larger down payment mean a lower PMI rate.
When can I cancel PMI?
On a conventional loan, you can request cancellation once your balance reaches 80% of the home's original value, and your lender must remove it automatically at 78% under the Homeowners Protection Act, as long as your payments are current. PMI also ends automatically at the loan's halfway point. Making extra principal payments — or a new appraisal after your home appreciates — can get you to the 80% threshold sooner.
What's the difference between PMI and MIP?
PMI is private mortgage insurance on conventional loans; MIP is the mortgage insurance premium on FHA loans. The big difference is cancellation: conventional PMI drops off automatically at 78% LTV, but FHA MIP lasts the life of the loan if you put down less than 10%. That's why many FHA borrowers refinance into a conventional loan once they reach 20% equity to stop paying MIP for good.
How can I avoid mortgage insurance?
The most direct way is to put down 20% or more on a conventional loan. Other options include a piggyback (80-10-10) loan where a second loan covers part of the down payment, lender-paid PMI built into a slightly higher interest rate, or a VA loan, which requires no mortgage insurance for eligible borrowers. You can also reach the 80% cancellation threshold faster by making extra principal payments.