How PMI Works and How to Remove It Early

If you purchase a home with less than a 20% down payment, your lender will almost certainly require you to pay Private Mortgage Insurance (PMI). PMI protects the lender — not you — in case you default on your mortgage. Fortunately, unlike FHA mortgage insurance premiums, private mortgage insurance on conventional loans is temporary and can be cancelled once you reach sufficient equity.

How Much Does PMI Cost?

PMI typically costs between 0.5% and 1.5% of your total loan amount annually, depending on your credit score and down payment percentage. For a $300,000 mortgage:

• At 0.5% rate: $1,500 / year = $125 / month
• At 1.0% rate: $3,000 / year = $250 / month

That is money paid directly to an insurance provider with zero return for your equity. Use our Mortgage Calculator to estimate your monthly PMI obligation.

3 Ways to Remove PMI Early

1. Automatic Cancellation at 78% LTV

Under the federal Homeowners Protection Act (HPA), your loan servicer is legally required to automatically terminate PMI when your principal balance reaches 78% of the original purchase price, provided you are current on payments.

2. Requested Cancellation at 80% LTV

You don't have to wait for 78%. Once your loan principal balance hits 80% of the original home purchase price, you have the right to submit a written request to your lender to cancel PMI. On a $300,000 home purchase, 80% is $240,000 balance.

3. Re-appraisal via Home Price Appreciation

If your local housing market has surged or you made major home improvements, your property value may have increased. If your current loan balance falls below 80% of the new appraised value, you can request a new lender appraisal. If verified, the lender will drop PMI immediately, saving you years of payments.