Private mortgage insurance (PMI) is an added monthly cost lenders charge when a borrower puts down less than 20% on a conventional home loan. It protects the lender— not the homeowner— if the borrower defaults. PMI commonly ranges from 0.3% to 1.5% of the loan amount per year, depending on your credit score, loan type, and down payment. Because PMI increases the monthly payment, many first-time homebuyers look for ways to avoid PMI or remove it.
What PMI Actually Covers
PMI does not cover your mortgage payments or protect you financially. Instead, it allows you to qualify for a conventional mortgage with a smaller down payment by reducing the lender’s risk. You still carry full responsibility for the loan.
Ways to Avoid PMI Before Buying
You can avoid PMI upfront by using one of these strategies:
- Put down at least 20%. This is the most direct way to avoid PMI on a conventional loan.
- Use lender-paid mortgage insurance (LPMI). The lender pays the insurance cost, but you accept a higher interest rate. This can lower your monthly payment short-term but increases total interest over time.
- Explore piggyback loans (80/10/10). This structure uses two loans to reduce the primary mortgage LTV to 80%, eliminating PMI.
- Compare mortgage lenders. Different lenders offer different PMI rates and options, and shopping around can reduce or eliminate PMI costs.
Ways to Remove PMI After Buying
If you already have PMI, you can remove it by increasing your home equity:
1. Reach 20% Equity
By law, lenders must remove PMI at 78% loan-to-value (LTV) automatically, and homeowners may request removal once they reach 80% LTV through payments or natural home appreciation.
2. Request a New Home Appraisal
If home values in your area have increased, a new appraisal may prove you now have 20% equity. This is one of the fastest ways to remove PMI without refinancing.
3. Refinance to a New Mortgage
If interest rates drop or your credit score improves, refinancing into a new conventional mortgage can eliminate PMI and lower your monthly payment.
Human Perspective | Avoid or Remove PMI 💬
PMI is frustrating to homebuyers because it raises the cost of owning a home without any direct benefit. But PMI also makes homeownership more accessible by allowing you to buy a home years earlier instead of waiting to save a full 20% down payment. The real key is understanding how PMI fits into your long-term plan.
Many homeowners discover they can remove PMI far sooner than they expected. For example, someone who bought during a period of rising home values may hit 20% equity after just 2 or 3 years, especially if they made small extra principal payments. A quick appraisal request or refinance can remove PMI and lower your monthly mortgage payment by $100 or more.
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