What is Private Mortgage Insurance (PMI)?

Private Mortgage Insurance, commonly known as PMI, is a type of mortgage insurance you might be required to pay for if you have a conventional loan. Like other kinds of mortgage insurance, PMI protects the lender—not you—if you stop making payments on your loan.

When is PMI Required?

PMI is usually required when you have a conventional loan and make a down payment of less than 20% of the home's purchase price. If you're refinancing with a conventional loan and your equity is less than 20% of the value of your home, PMI is also usually required.

How Much Does PMI Cost?

The cost of PMI varies based on your loan-to-value (LTV) ratio and credit score, but you can expect to pay between 0.5% to 1% of the entire loan amount on an annual basis. For example, on a $300,000 loan, a 1% PMI fee translates to $3,000 a year, or $250 added to your monthly payment.

How to Avoid or Remove PMI

• Make a 20% down payment: This is the most straightforward way to avoid PMI altogether from day one.
• Wait for automatic cancellation: Lenders are legally required to terminate PMI on the date your principal balance is scheduled to reach 78% of the original value of your home.
• Request cancellation: You can formally request in writing that your lender cancel PMI once your principal balance reaches 80% of the original home value.