What PMI is
Private mortgage insurance (PMI) protects the lender if you stop making payments. It's required on most conventional loans with less than 20% down, and it's added to your monthly mortgage payment until you reach 20% equity.
The trade-off: PMI is what makes low-down-payment financing possible at all. Without it, lenders wouldn't accept the higher risk of low-equity loans. PMI is the cost of getting into a home faster.
How much it costs
PMI typically runs 0.3% to 1.5% of the loan amount per year, depending on your credit score, down payment, and loan term. On a $400,000 loan with average credit and 5% down, expect somewhere around $150–$250/month.
The lower your credit score and the lower your down payment, the higher the rate. The opposite is also true — strong credit can drop PMI substantially.
Conventional PMI vs. FHA MIP
FHA loans have their own version called Mortgage Insurance Premium (MIP), and the rules differ:
- Conventional PMI falls off automatically once you reach 22% equity by paying down the loan. You can also request removal at 20% equity, often after a new appraisal.
- FHA MIP typically lasts the life of the loan if you put less than 10% down. The only way to remove it is to refinance into a conventional loan.
This is why many FHA borrowers refinance to conventional once they've built equity — it eliminates MIP and often saves a meaningful chunk of monthly payment.
How to get rid of PMI faster
- Pay extra principal. Each extra dollar drops the balance and gets you closer to 20% equity.
- Request a new appraisal. If your home has appreciated since you bought it, an updated appraisal might show you've already crossed the 20% line — even without paying extra.
- Refinance. If rates have dropped meaningfully, refinancing into a conventional loan with at least 20% equity drops PMI in one move.
When PMI is worth it anyway
Waiting to save 20% is often more expensive than buying now with PMI. Home prices and rents can rise faster than you can save. Time-in-market on your principal residence is hard to beat.
Run the math both ways. Often, paying $200/month in PMI for two years until you build equity is meaningfully cheaper than waiting two years to save another $50,000 while rents and prices rise.
Curious whether PMI is right for your scenario?
We'll model your options side-by-side — 5%, 10%, 15%, and 20% down — so you can see the trade-offs in real numbers. Reach out.