Practical mortgage education, calculators, and decision-support resources for US home buyers.
Reviewed for clarity, source alignment, calculator context, and educational limitations.
This article is for educational and planning purposes only. It is not financial, legal, tax, or mortgage advice. Confirm loan terms, eligibility, costs, and strategy with qualified professionals.
- PMI is commonly required on conventional loans when the down payment is below 20%.
- PMI protects the lender, not the borrower, but it can make a smaller down payment possible.
- The useful question is not only whether PMI exists, but whether the full payment still fits.
- PMI is different from FHA mortgage insurance and other program-specific fees.
- Cancellation rules should be discussed before closing, not years later.
PMI is a tradeoff, not just an extra fee
Private mortgage insurance, or PMI, is easy to treat as a penalty for not having a 20% down payment. That framing is too simple. PMI raises the monthly payment, but it may also let a buyer purchase with less cash upfront and keep money available for moving costs, repairs, and emergency reserves.
A better PMI decision compares two complete scenarios: buying with PMI and more cash left over, or waiting until the down payment is larger. Both choices can be reasonable. The stronger choice is the one that fits the buyer's payment, cash position, time horizon, and comfort with risk.
PMI is often a liquidity decision. Avoiding PMI can lower the monthly payment, but draining savings to reach 20% down can leave a household less prepared for the first year of ownership.
What PMI actually does
PMI is insurance connected to many conventional mortgages with smaller down payments. The borrower usually pays for it, but the coverage protects the lender if the borrower defaults. It does not protect the borrower from missed payments, credit damage, foreclosure, or repair costs.
That does not make PMI useless. It can be the cost that makes a lower-down-payment conventional loan possible. Buyers should understand the cost clearly and include it in the full monthly housing estimate alongside principal, interest, taxes, homeowners insurance, and any HOA dues.
When PMI usually applies
PMI is commonly required when a conventional mortgage begins above 80% loan-to-value, which usually means the buyer puts less than 20% down. For a $400,000 home, a 10% down payment is $40,000 and the loan amount is $360,000. That creates a 90% loan-to-value ratio, so PMI would commonly be expected.
Exact requirements can vary by lender, loan product, credit profile, and insurance pricing. The Loan Estimate should show the projected mortgage insurance cost when it applies.
PMI cost example with real planning numbers
Suppose a buyer is considering a $400,000 home with 10% down. The loan amount is $360,000. If the estimated annual PMI rate is 0.55%, the annual PMI estimate is $1,980, or about $165 per month.
| Scenario | Amount | Planning impact |
|---|---|---|
| Home price | $400,000 | Purchase price used for the estimate. |
| Down payment | $40,000 | 10% down, below the 20% benchmark. |
| Loan amount | $360,000 | Amount used to estimate PMI. |
| Estimated annual PMI | $1,980 | $360,000 x 0.55%. |
| Estimated monthly PMI | $165 | Added to the monthly housing estimate. |
If principal and interest, taxes, and insurance were already around $2,925 per month, this PMI estimate would raise the planning payment to about $3,090 before HOA dues or other costs.
PMI vs. other mortgage insurance
PMI usually refers to private mortgage insurance on conventional loans. FHA loans use mortgage insurance premiums, often called MIP, with different upfront and annual rules. VA and USDA loans may use program fees or guarantee fees rather than PMI.
This distinction matters because cancellation rules, upfront costs, and monthly costs can differ. A conventional loan with PMI is not automatically better or worse than an FHA loan. The comparison should include rate, payment, mortgage insurance, upfront fees, closing costs, and how long the borrower expects to keep the loan.
When PMI may be removed
Borrower-paid PMI on many conventional loans may be cancelable after the borrower reaches certain equity milestones and meets servicer requirements. Some borrowers track the original loan schedule, while others ask whether a new valuation can support cancellation after home values rise.
Do not assume PMI will disappear automatically on the exact date you expect. Before closing, ask the lender or servicer what cancellation rules apply, whether a written request is needed, whether an appraisal or valuation may be required, and what happens if payments are late.
Questions to ask before accepting PMI
- What is the monthly PMI amount shown on the Loan Estimate?
- Is the PMI borrower-paid monthly, upfront, lender-paid, or structured another way?
- How would the payment change at 5%, 10%, 15%, and 20% down?
- What cash would remain after closing in each scenario?
- When can PMI be canceled, and what documentation is required?
- Would a different loan type change the mortgage insurance rules?
Related calculator
Estimate PMI before choosing a down payment.
Use the PMI Calculator to compare monthly mortgage insurance, annual PMI, and whether PMI is likely based on your down payment.
References
- Consumer Financial Protection Bureau - Private mortgage insurance overview
- Consumer Financial Protection Bureau - Loan Estimate explainer
