PMI explained: what it costs and when it ends

If you buy a home in the US with a conventional loan and put down less than 20%, your lender will usually require private mortgage insurance (PMI). It adds to your monthly payment, but unlike the loan itself it does not have to last for the full term. Knowing exactly when it can be removed, and what you can do to reach that point sooner, can be worth thousands of dollars.

In this article you will learn:

• what PMI is, who it protects and how it is typically quoted
• the cancellation and automatic termination rules for conventional loans, as described by the Consumer Financial Protection Bureau (CFPB) at the time of writing
• how FHA mortgage insurance differs in general terms
• a worked example that calculates the month a loan reaches 80% and 78% of the home's original value
• how extra payments affect the timeline

What PMI is and who it protects

PMI is an insurance policy that protects the lender, not you, if you stop making payments and the home is sold for less than what is owed. Lenders view loans with small down payments as riskier, so they require this coverage as a condition of lending. You pay the premium, but the benefit goes to the lender.

That can sound like a bad deal, and in isolation it is a cost with no direct benefit to the borrower. The practical upside is that it allows you to buy with less than 20% down, which may let you buy years earlier than if you waited to save a full 20%.

How PMI is priced

PMI is commonly quoted as an annual percentage of the loan amount, then divided into monthly installments added to your mortgage payment. The CFPB notes that PMI rates vary by down payment amount and credit score, and that most PMI is paid monthly, with little or no initial payment required at closing. Other structures exist, such as a single upfront premium or lender-paid PMI built into a higher interest rate.

Illustrative pricing. Suppose a lender quotes PMI at 0.5% per year on a $360,000 loan. That is $360,000 × 0.005 = $1,800 per year, or $150 per month. This rate is purely an example to show the arithmetic. Actual quotes depend on your credit, down payment, loan type and insurer, so ask your lender for a Loan Estimate that shows the real figure.

The key number throughout this article is the loan-to-value ratio (LTV): the loan balance divided by the home's value. For PMI cancellation on conventional loans, the relevant value is generally the home's original value, not today's market value.

When PMI ends on a conventional loan

The Homeowners Protection Act sets federal rules for removing PMI. The CFPB summarizes them as follows at the time of writing. These rules apply to mortgages for single-family principal residences that closed on or after July 29, 1999.

1. Requesting cancellation at 80%

You can ask your servicer to cancel PMI once your principal balance is scheduled to fall to 80% of the original value of your home. The CFPB also says you can ask ahead of the scheduled date if additional payments have reduced your balance to 80% of the original value. According to the CFPB, you generally need to:

• make the request in writing
• have a good payment history and be current on your payments
• have no junior liens (such as a second mortgage or home equity line of credit) on the home
• provide evidence, if the lender requires it, that the property's value has not declined below the original value (for example, an appraisal)

2. Automatic termination at 78%

Your servicer must automatically terminate PMI on the date your principal balance is scheduled to reach 78% of the original value, provided you are current on your payments. The word "scheduled" matters: this date comes from the original amortization schedule, so extra payments you make do not bring the automatic date forward. They do, however, let you reach 80% sooner and request cancellation.

3. Final termination at the midpoint

Even if neither threshold has been reached (which can happen with certain loan structures), the CFPB says your lender or servicer must end PMI the month after you reach the midpoint of your loan's amortization schedule, as long as you are current. For a 30-year loan, the midpoint is after 15 years.

What "original value" means

The CFPB explains that original value generally means the lower of the contract sales price or the appraised value at the time you bought the home. If you have refinanced, the original value is the appraised value at the time of the refinance.

Some lenders and investors also have their own programs for removing PMI based on a new appraisal after the home's value has risen. Those programs are separate from the federal rules above, have their own conditions, and vary by lender. Ask your servicer what applies to your loan.

How FHA mortgage insurance is different

Loans insured by the Federal Housing Administration (FHA) use their own mortgage insurance premium (MIP), not PMI, and the Homeowners Protection Act cancellation rules described above do not govern it. The CFPB describes FHA mortgage insurance, in general terms, as:

• required for all FHA loans
• costing the same regardless of credit score, with only a slight increase for down payments below 5%
• made up of an upfront premium, paid as part of closing costs, and an ongoing monthly premium included in your payment

The CFPB states that FHA and VA loans have different requirements for removing mortgage insurance, and suggests contacting your servicer for details. How long FHA MIP lasts depends on the loan's terms and rules set by the Department of Housing and Urban Development, which have changed over time, so check your loan documents or ask your servicer rather than assuming. Some FHA borrowers later refinance into a conventional loan to replace MIP with PMI or remove mortgage insurance altogether, which is a decision to model carefully with closing costs included.

Worked example: when does LTV reach 80% and 78%?

This is an illustrative example. We use the standard amortization formula (covered in more depth on our blog), rounding each month's interest to the cent.

Inputs

• Home purchase price and appraisal: $400,000 (so original value = $400,000)
• Down payment: 10% ($40,000)
• Loan amount: $360,000, which is an initial LTV of 90%
• Rate: 6.5% fixed, 30 years (360 payments)
• Monthly principal and interest: $2,275.44
• Illustrative PMI: 0.5% per year, $150 per month

Target balances

• 80% of original value = 0.80 × $400,000 = $320,000
• 78% of original value = 0.78 × $400,000 = $312,000

Following the schedule

So, with regular payments only:

• The balance is scheduled to fall below 80% with payment 95, which is 7 years and 11 months into the loan. From that point you could request cancellation if you meet the conditions above.
• The balance is scheduled to reach 78% with payment 109, which is 9 years and 1 month in. If you are current, the servicer must terminate PMI automatically at that point.

At the illustrative $150 per month, the difference between requesting at month 95 and waiting for automatic termination after month 109 is 14 months of premiums, or 14 × $150 = $2,100.

Your servicer's own schedule is what counts, and small differences in rounding or first payment date can move these points by a month. Ask your servicer for the scheduled dates, and check your closing documents and statements for PMI information.

How extra payments speed things up

Because you can request cancellation once your actual balance reaches 80% through extra payments, paying ahead can shorten the PMI period considerably.

Same example, with $300 extra per month toward principal from the first payment:

• The balance falls below $320,000 (80%) with payment 56, which is 4 years and 8 months in, instead of payment 95.
• You could then request cancellation, subject to the same conditions (written request, payment history, no disallowed liens, value evidence if required).
• The automatic termination date stays tied to the original schedule (payment 109). If you never ask, you may keep paying PMI longer than you need to.

At the illustrative $150 per month, cancelling after payment 56 instead of payment 95 avoids 39 months of premiums, or $5,850, in addition to the interest saved by paying down the loan faster. The extra payments themselves are not a cost; they are principal you would have repaid anyway.

Checklist: getting PMI removed

• Find your original value (the lower of purchase price or appraisal at purchase, or the refinance appraisal).
• Calculate 80% and 78% of that value.
• Ask your servicer for the scheduled dates when your balance reaches 80% and 78%.
• Check your current balance on your latest statement.
• Keep payments current: a late payment history can block a cancellation request.
• If you are close to 80%, consider a principal-only extra payment to cross the line.
• Submit a written cancellation request and ask what evidence of value the servicer requires.
• Confirm in writing that PMI has been removed and check that your next payment reflects it.
• If you have an FHA loan, ask your servicer specifically how and when MIP can end on your loan.

Common misconceptions

"PMI protects me if I lose my job." It does not. PMI protects the lender. Mortgage protection or disability insurance products are different things.

"PMI drops off when my home's market value rises." Not automatically under the federal rules, which use the original value. Some lenders offer removal based on a new appraisal, but that is a lender policy you need to ask about.

"The servicer will remove it as soon as I hit 80%." At 80% you usually need to ask. The automatic removal happens at the scheduled 78% date.

"FHA insurance works the same way." FHA MIP has its own rules and is not covered by the conventional PMI cancellation provisions.

Summary

• PMI protects the lender on conventional loans with less than 20% down and is usually paid monthly as a percentage of the loan.
• At the time of writing, the CFPB describes three federal endpoints for conventional loans: you may request cancellation at 80% of original value, the servicer must terminate automatically at the scheduled 78% date, and PMI must end the month after the loan's midpoint.
• In our illustrative $360,000 example on a $400,000 home, 80% is reached with payment 95 and 78% with payment 109.
• Extra payments can get you to 80% much sooner, but you need to submit a request; the automatic date does not move.
• FHA loans use MIP with different rules; ask your servicer how they apply to your loan.

Sources: CFPB, "When can I remove private mortgage insurance (PMI) from my loan?" and "What is mortgage insurance and how does it work?" (consumerfinance.gov), both checked at the time of writing. This article is general information, not financial or legal advice. See our financial disclaimer.