PMI Explained: What It Costs, When It Drops Off, and How to Get Rid of It Faster

The One Insurance Policy You Pay For That Doesn't Protect You

Private mortgage insurance is one of the more cleverly named products in American consumer finance. It sounds like it protects you. It does not. It protects your lender against the risk that you stop paying and they have to foreclose on a house that's worth less than what you owe. You pay the premium. The lender is the beneficiary. If you default and the policy pays out, it pays out to them, not to your family.

None of that means PMI is a scam. For a buyer who would otherwise need years to save a twenty percent down payment, PMI is the price of admission to homeownership a half-decade earlier than the alternative. Whether that's a good trade depends on your local housing market, your rate environment, and your honest read of how long you'd actually keep renting. But the trade is only sensible if you understand what you're buying, what it costs, and when it stops. Most people get the third question wrong, and they end up paying PMI for one to four years longer than they had to.

This is a working guide to the only three things that actually matter about PMI: what it is and how it's priced, when it falls off without you doing anything, and how to make it fall off faster.

What PMI Actually Is

When a lender writes a conventional mortgage for a borrower who puts down less than twenty percent of the purchase price, the lender's exposure is higher than they're comfortable carrying alone. So they require the borrower to buy an insurance policy from a third party — MGIC, Radian, Essent, Arch, Enact, or National MI are the major players — that will pay the lender some portion of the loss if the loan defaults. That policy is private mortgage insurance.

The premium is priced as a percentage of the loan balance per year, billed monthly, and folded into your mortgage payment so you barely notice it as a separate line item. The percentage depends on three things in roughly this order of weight: your loan-to-value ratio at origination (how much of the house's value the loan represents), your credit score, and the loan program. Annual rates in 2026 typically land somewhere between about 0.3 percent and 1.5 percent of the loan amount, which on a $300,000 loan works out to a monthly PMI bill anywhere from roughly $75 to $375. The default assumption many calculators use is 0.5 percent, which is a reasonable middle-of-the-road estimate for a borrower with a solid credit profile and a down payment in the 5-to-15 percent range. Your actual quote will be on your loan estimate; trust that, not a rule of thumb.

PMI is specifically a conventional-loan concept. FHA loans have a different and more aggressive equivalent called the Mortgage Insurance Premium, or MIP, which behaves very differently — we'll come back to that, because the rules people think apply to "PMI" often don't apply to FHA borrowers at all.

Borrower-Paid, Lender-Paid, and Single-Premium PMI

There's more than one structure, and the structure determines whether the techniques later in this article apply to you. Borrower-paid monthly PMI is the default — a monthly premium added to your payment, cancellable under the rules below. Lender-paid PMI (LPMI) means the lender pays the premium and recovers it by charging you a slightly higher interest rate forever; you can never cancel it because it's baked into the rate itself, and the only way out is to refinance. Single-premium PMI is paid as a lump sum at closing, sometimes financed into the loan. Single-premium can be the cheapest structure if you stay in the home for the long haul, but it's a sunk cost — there's nothing to cancel and no refund if you sell or refinance in year three.

If your loan estimate or closing disclosure shows a higher rate than competitors quoted you and no separate PMI line, ask your lender directly whether you have LPMI. People are routinely surprised, years in, to learn there was never anything to cancel.

The Real Math of "When Does PMI Drop Off"

For conforming conventional loans on a primary residence, PMI cancellation is not a matter of lender goodwill — it's federal law. The Homeowners Protection Act of 1998, codified at 12 U.S.C. § 4901 and following, imposes three different cancellation thresholds, and which one applies depends on whether you're being passive, active, or extremely patient.

Automatic Termination at 78% LTV

Under the HPA, your servicer must automatically terminate PMI on the date your loan balance is first scheduled to reach 78 percent of the original property value, based on the original amortization schedule. The phrase "original property value" matters: it means the lesser of the sale price or the appraisal at origination. The phrase "scheduled to reach" matters even more: the trigger is the amortization schedule, not your actual balance. If you've paid extra principal and you're already below 78 percent two years ahead of schedule, automatic termination still doesn't fire until the scheduled date. The servicer is also required to be current on payments at that date for automatic termination to apply.

The Midpoint Rule

If for some reason you reach the midpoint of the loan term — month 180 of a 30-year loan, for instance — and PMI hasn't terminated yet because of slow amortization or delinquencies, the HPA requires termination at the midpoint regardless of LTV. This is the backstop almost no one ever hits, but it's worth knowing it exists.

Borrower-Requested Cancellation at 80% LTV

This is the one that saves people real money. You can request cancellation in writing once your balance reaches 80 percent of the original property value. You don't have to wait for automatic termination at 78. The request has to be in writing, you have to be current on payments, and the servicer can require a few additional things: a clean payment history (typically no payments 30+ days late in the last year, no payments 60+ days late in the last two years), confirmation there's no subordinate lien (a HELOC, for instance), and often an appraisal at your expense to certify the property hasn't dropped in value. Servicer policies on the appraisal requirement vary; some waive it if you're using the original valuation, some require a new broker price opinion, some require a full appraisal.

The practical timing difference between borrower-requested at 80 percent and automatic termination at 78 percent is usually somewhere between six months and two years, depending on your interest rate and how aggressively the loan amortizes. At a $400,000 original loan amount and $200 a month in PMI, that's $1,200 to $4,800 of premium you keep instead of pay.

The FHA Trap

None of the above applies to FHA loans the way most borrowers think it does. FHA's Mortgage Insurance Premium has been governed by HUD rules, and since a rule change that took effect in 2013, most FHA loans originated with less than 10 percent down carry MIP for the entire life of the loan. You cannot cancel it by hitting 80 percent LTV, you cannot cancel it by paying down, and you cannot cancel it by getting an appraisal. The only ways out are to refinance into a conventional loan once you have the equity to do so, or to sell. Borrowers who put 10 percent or more down on an FHA loan can drop MIP after 11 years, but the under-10-percent cohort is stuck. If you have an FHA loan and you're trying to ditch MIP, the question is not "when does it cancel" but "when does refinancing into a conventional loan make sense given current rates and your equity position."

How to Force PMI Off Years Early

The HPA gives you the right to cancel at 80 percent of original value. It does not require your servicer to recognize the home's current value if it has appreciated. But most servicers — and the GSE guidelines they operate under — do have a separate "substantial improvement" or "current value" cancellation pathway, and that's where real acceleration happens.

Fannie Mae's and Freddie Mac's servicing guides allow PMI cancellation based on current appraised value under specific conditions. Typically: at least two years of payment history on the loan, an LTV of 75 percent or less based on a current appraisal if you're going off appreciation alone, or 80 percent if the equity gain comes from documented improvements you've made to the property. The numbers shift between two-year and five-year seasoning depending on the program and the equity source. Your servicer can tell you exactly which thresholds they apply.

The mechanical version of how to do this looks like this. Pull up your current loan balance from your servicer's portal. Pull comparable recent sales in your neighborhood from Zillow, Redfin, or your county assessor — get a defensible number, not an aspirational one. Divide your balance by that estimated value and see where you actually stand. If you're well under 80 percent based on plausible current value, plug the same numbers into the mortgage calculator with PMI zeroed out and see what the monthly payment would look like without it. That gap is your motivation for the next step: call your servicer, ask specifically about their policy for PMI cancellation based on current value, and ask which appraisal type they require. A full appraisal will run you somewhere in the $400-to-$600 range; a broker price opinion is cheaper. If the appraisal comes in where you expect, you can erase $1,500 to $3,000 a year in premium for a one-time cost of a few hundred dollars.

Two practical notes. First, time your appraisal request for a season when comparable sales in your area are strong; appraisers lean heavily on recent comps, and asking in a soft local market is asking for a number you don't want. Second, if you've done documented renovations — a finished basement, a kitchen overhaul, a permitted addition — gather the receipts and permits before the appraiser shows up. Improvements you can prove count toward the equity calculation in a way that "the market went up" doesn't always.

When PMI Is Worth Paying On Purpose

The instinct to avoid PMI by saving for a full 20 percent down payment is sound for some buyers and actively wrong for others. The arithmetic is local and unromantic. If your local market is appreciating faster than you're saving, every year you wait to buy costs more in foregone appreciation than you'd save in avoided PMI. If you've got a lower-rate mortgage available now and rates are expected to climb, the avoided rate increase swamps the PMI premium. If you'd rent for another three years to save the down payment, the rent itself is a sunk cost with no tail of equity behind it.

The honest comparison is total housing cost over your expected ownership horizon: mortgage payment plus PMI plus tax plus insurance plus maintenance, versus rent plus what your down-payment savings would have earned in a money-market account. PMI in that comparison is usually a small number — often 0.3 to 0.6 percent of the loan annually for buyers with good credit — and the time horizon to cancellation is usually short enough that the policy is best understood as a temporary toll for early entry rather than a permanent expense.

The mistake people make is not paying PMI. The mistake is paying it for three or four years longer than the law required them to, because no one explained that the 80-percent-LTV request was a thing you had to initiate in writing, or that current-value cancellation was a thing at all. The single highest-return half-hour of paperwork in most mortgages is the one where the borrower realizes they crossed 80 percent eighteen months ago and sends the letter.

The Short Version

Read your loan documents to find out whether you have borrower-paid monthly PMI, lender-paid PMI, or FHA MIP, because the playbook is different for each. If you have borrower-paid PMI on a conventional loan, your servicer is legally required to drop it at 78 percent LTV on the original schedule, and is required to drop it earlier than that if you request it in writing once your balance hits 80 percent of original value. If your home has appreciated meaningfully, ask your servicer about cancellation based on current appraised value and run the math before you pay for an appraisal. If you have FHA MIP with under 10 percent down, the only real exit is refinancing into a conventional loan once your equity supports it. The premium itself is the price of an earlier closing day, and on most reasonable comparisons it's a price worth paying — but only for as long as you actually owe it.