What Is PMI (Private Mortgage Insurance)? How It Works and How to Get Rid of It in 2026
PMI stands for Private Mortgage Insurance. It's insurance that protects your mortgage lender — not you — if you stop making loan payments and the lender has to foreclose. Lenders require PMI when a borrower makes a down payment of less than 20% on a conventional mortgage. You pay the premiums, even though the coverage exclusively benefits your lender.
PMI is only required on conventional loans. FHA loans have MIP, VA loans have a funding fee, and USDA loans have an annual guarantee fee — each distinct from PMI.
How Much Does PMI Cost in 2026?
PMI typically costs 0.30%–1.15% of the original loan amount per year, depending on your down payment size, credit score, loan type, and loan term.
Example — $350,000 home with 5% down ($17,500): Loan amount $332,500 × 0.65% = approximately $180/month in PMI.
Example — $350,000 home with 10% down ($35,000): Loan amount $315,000 × 0.45% = approximately $118/month in PMI.
A larger down payment lowers both your loan amount and your PMI rate.
How Is PMI Paid?
- Monthly PMI (most common): Added as a line item to your monthly mortgage payment
- Upfront PMI: One-time premium paid at closing, reducing or eliminating monthly PMI
- Split-premium PMI: Smaller upfront premium plus reduced monthly payments
- Lender-Paid PMI (LPMI): Lender pays PMI but charges a higher interest rate — no monthly PMI, but the higher rate lasts for the life of the loan and cannot be canceled
How to Avoid PMI Altogether
1. Put 20% down — the simplest solution. 2. Piggyback loan (80/10/10): First mortgage at 80%, second mortgage (HELOC) at 10%, 10% down payment — no PMI because the first loan is at 80% LTV. 3. Lender-Paid PMI: Higher rate, no PMI line item — best for short-term holds. 4. VA loan: No down payment, no PMI for eligible veterans and active-duty military. 5. USDA loan: No down payment, annual fee of just 0.35% instead of PMI for eligible rural/suburban buyers. 6. Physician loans and specialty programs: Some lenders offer 0–10% down with no PMI for healthcare professionals. 7. First-time buyer programs: Some state housing agencies offer loan programs with reduced or no PMI for qualifying buyers.
PMI vs. MIP: What's the Difference?
| Feature | PMI (Conventional) | MIP (FHA) |
|---|---|---|
| Loan type | Conventional | FHA |
| Upfront fee | Usually none | 1.75% of loan |
| Annual fee | 0.30%–1.15% | 0.55% (most loans) |
| Can be removed? | Yes, at 80% LTV | Only with 10%+ down |
Key difference: PMI on conventional loans can be canceled. MIP on FHA loans originated since 2013 typically cannot be canceled if you put less than 10% down — it lasts the life of the loan.
How to Remove PMI From Your Mortgage
Option 1: Request cancellation at 80% LTV. Under the Homeowners Protection Act (HPA), you have the legal right to request PMI cancellation when your loan balance reaches 80% of the original purchase price. Contact your servicer in writing, confirm a good payment history (no 30-day lates in the past year), and they may require an appraisal.
Option 2: Automatic termination at 78% LTV. Federal law requires lenders to automatically cancel PMI when your balance reaches 78% of the original purchase price — as long as you're current on payments. For a 30-year loan with 5% down, this typically takes 8–11 years.
Option 3: Refinance. If your home has appreciated significantly, refinancing to a new loan at under 80% LTV eliminates PMI — though you'll pay closing costs (2–5% of loan amount) and reset your rate.
Option 4: New appraisal. Some servicers allow PMI cancellation based on current market value if you've owned for at least two years and your loan balance is ≤80% of the new appraised value. You pay for the appraisal (~$400–$600).
Option 5: Extra principal payments. Adding even $100–$300/month to your principal payment can shave years off the timeline to reaching 80% LTV.
When Does PMI Make Sense to Accept?
PMI isn't always bad. If home prices are appreciating, buying now with PMI and building equity may outperform waiting years to save a 20% down payment. If your rent is comparable to or higher than an all-in mortgage payment with PMI, buying now makes financial sense. The key is understanding exactly what you're paying and having a clear plan to eliminate it.
PMI Quick-Reference Checklist
- Calculate your exact PMI cost — ask multiple lenders for quotes
- Compare conventional-with-PMI vs. FHA loan total monthly costs
- Ask your lender about piggyback loan options to avoid PMI
- Check VA, USDA, or specialty loan eligibility
- Understand your cancellation rights under the Homeowners Protection Act
- Request an amortization schedule showing when you'll reach 80% and 78% LTV
- Set a calendar reminder to request PMI cancellation at 80% LTV