Private mortgage insurance (PMI)

Before you rely on it

What to check

Find out the specific removal condition for your loan type.

The common error

Where people go wrong with private mortgage insurance (PMI)

Assuming every loan allows cancellation. Some conventional loans drop it at a loan-to-value threshold; on certain other loan types it runs for the life of the loan and the only exit is a refinance.

Worked through

Private mortgage insurance (PMI) in plain numbers

You buy a $400,000 home with 10% down and borrow $360,000, an 80% to 90% loan-to-value situation. Suppose PMI costs 0.5% of the loan per year: $1,800, or $150 a month; it protects the lender if you default, not you. Under many conventional loan rules, you can ask to cancel when the balance falls to 80% of the original value, here $320,000, and it generally ends automatically at a lower threshold. Paying down $40,000 takes years on a normal schedule, though a rise in the home's value can shorten the wait if your lender allows a new appraisal; the figures here are examples.

Easily confused

Private mortgage insurance (PMI) and its neighbours

PMI is not mortgage life insurance, homeowners insurance or the FHA mortgage insurance premium. PMI applies to conventional loans with less than 20% down and protects the lender. Homeowners insurance protects the property. Mortgage life insurance pays off a loan if the borrower dies. FHA loans have their own mortgage insurance, with different rules for cost and cancellation. Lender-paid PMI builds the cost into a higher rate instead of a monthly charge, and the types differ in whether you can cancel them.

In real decisions

Where private mortgage insurance (PMI) turns up

Buyers with smaller down payments compare the monthly cost of PMI with the benefit of buying sooner. Homeowners check when they can drop it; lenders quote it as part of the payment; some borrowers use piggyback loans or make larger down payments to avoid it. A calculator shows how PMI changes the monthly payment and when it may end. Knowing the cancellation rules can save thousands.

Know the edges

Where private mortgage insurance (PMI) stops being reliable

Cost varies with credit score, loan-to-value and lender. Cancellation rules depend on the loan type, the lender and the law. Cancelling may require an appraisal and a good payment history. This page is educational and not financial advice. Check your loan documents and ask your servicer for the specific cancellation conditions.

Quick answers

What people ask about private mortgage insurance (PMI)

How can I get rid of PMI? Reach the required loan-to-value through payments or a rise in value, then ask your servicer to cancel. Requirements may include a good payment history and an appraisal.

Is PMI tax deductible? Rules have changed over the years and depend on your situation. Ask a tax professional about the current year.

Is there an alternative to PMI? Some lenders offer a higher rate instead, or a second loan to reach 80 percent. Compare total cost over the time you expect to hold the loan.