Private mortgage insurance, or PMI, is what lets you buy with less than 20% down. It protects the lender if you default, and you pay for it. The good news is that it is temporary, and the rules for removing it are set by law.
Why it exists
A borrower with under 20% equity is statistically riskier for the lender, so the lender offloads some of that risk to an insurer and passes the premium to you. Once you have enough equity, the risk falls and the insurance is no longer required.
What it costs
PMI typically runs 0.5% to 1.5% of the loan amount a year, charged monthly. The exact figure depends on your credit and down payment. On a $320,000 loan at 0.55%, that is roughly $147 a month, real money that adds nothing to your equity.
When it drops off
Two thresholds matter, both based on the original value of the home:
- At 80% loan-to-value, once you have 20% equity, you can request cancellation in writing.
- At 78% loan-to-value, your servicer must cancel it automatically, based on the original payment schedule.
Our calculator estimates the month your balance reaches 20% equity and drops PMI from the payment then, so you can see how long you will pay it and what your payment becomes afterward.
How to remove it sooner
Because PMI is tied to equity, extra principal payments bring the cancellation date forward. A rising home value can also help: if your home appraises higher, you may reach 20% equity ahead of schedule and can ask your servicer about cancelling based on the new value.