What Is PMI? How Much It Costs and When It Goes Away

The short answer

PMI (private mortgage insurance) is a monthly charge most lenders add to a conventional US home loan when your down payment is less than 20%. It protects the lender, not you. Under federal rules you can ask to cancel it once your balance reaches 80% of the home's original value, and it must end automatically when the balance is scheduled to reach 78%. The Mortgage Calculator adds an estimated PMI to your payment whenever the down payment is under 20%, so you can see what it costs before you buy.

What PMI is and when you pay it

When you put down less than 20% on a conventional mortgage, the lender is taking more risk, so it usually requires mortgage insurance from a private company. According to the Consumer Financial Protection Bureau (CFPB), PMI protects the lender if you stop paying; it does not protect you or your home.

Key points:

• Who pays: you, usually as part of the monthly payment.
• What it costs: the CFPB says PMI rates vary by down payment and credit score. Quotes are often described as a percentage of the loan amount per year.
• FHA and VA loans are different. FHA loans have their own mortgage insurance with an upfront and a monthly charge, and different removal rules. This guide covers conventional loans.

How the Mortgage Calculator estimates PMI

The calculator uses a simple, fixed assumption so the effect is easy to see:

• If the down payment is under 20% of the home price, it adds PMI of 1% of the loan amount per year, divided by 12.
• At 20% or more, PMI is zero.
• The monthly payment it shows is principal and interest, plus property tax (a slider from $0 to $2,000 a month), plus a fixed $100 a month home-insurance estimate, plus PMI.

Your real PMI quote may be higher or lower than 1%. Use the calculator to compare scenarios, then replace the estimate with your lender's figure. Because the $100 insurance figure is fixed, compare the Principal + Interest card when you want the loan cost alone.

Worked example: 10% down vs 20% down

A $400,000 home at a 7% rate on a 30-year loan, with $300 a month property tax:

| 5% down	10% down	20% down
Down payment	$20,000	$40,000	$80,000
Loan amount	$380,000	$360,000	$320,000
Principal + interest	$2,528	$2,395	$2,129
Estimated PMI (1% a year)	$317	$300	$0
Monthly payment shown	$3,245	$3,095	$2,529

With 10% down, PMI adds $300 a month. Together with the larger loan, the monthly payment is $566 higher than with 20% down.

When PMI goes away

The CFPB describes three points at which PMI ends on most conventional loans:

You can request cancellation when your principal balance reaches 80% of the original value of the home. You must ask in writing, be current on payments with a good payment history, have no second mortgage or other junior lien, and may need to show the home's value has not fallen, usually with an appraisal.

It ends automatically on the date your balance is scheduled to reach 78% of the original value, as long as you are current on payments.

It must end at the midpoint of the loan's schedule even if neither of the above has happened, for example after 15 years on a 30-year loan.

"Original value" generally means the lower of the purchase price or the appraised value when you bought.

How long that takes in the example

On the $360,000 loan at 7% with regular payments only:

• The balance reaches $320,000 (80% of $400,000) after 101 payments, about 8.4 years.
• It reaches $312,000 (78%) after 115 payments, about 9.6 years.
• At $300 a month, waiting for automatic removal means paying about $34,500 in PMI.

These figures come from a standard amortization calculation. The calculator's warning message says PMI is removed once you reach 20% equity, which matches the point where you can request cancellation; automatic removal happens a little later, at 78%.

Ways to pay less PMI

Pay extra principal to reach 80% sooner

Extra payments go straight to principal. In the example:

Extra each month	Time to reach 80%
$0	about 8.4 years
$200	about 5.6 years
$500	about 3.8 years

Remember that requesting cancellation is your job. The lender removes PMI automatically only at 78%, based on the original schedule, so if you prepay, ask for cancellation in writing when you reach 80%.

Get a new appraisal if the home's value rose

Some lenders allow cancellation based on a current appraisal if prices have risen, though the federal 80% rule uses the original value. These lender-specific policies vary, so ask your servicer what they accept and whether there are seasoning requirements.

Put more down, or wait

Saving to 20% avoids PMI entirely, but waiting has its own cost if prices or rates rise in the meantime. Use the calculator to compare the extra monthly cost of PMI with how long it would take you to save the difference.

Compare lender-paid options

Some lenders offer to pay the mortgage insurance in exchange for a higher interest rate. That higher rate usually lasts for the life of the loan, unlike PMI, which you can remove. Compare total cost over the years you expect to keep the loan.

Common mistakes

• Assuming PMI ends by itself at 80%. It ends automatically at 78%; at 80% you must ask.
• Ignoring PMI when comparing homes. On a low down payment, it can add hundreds of dollars a month.
• Confusing PMI with homeowners insurance. Homeowners insurance protects your home and is usually required whatever your down payment. PMI is extra.
• Treating the 1% estimate as a quote. Credit score and down payment change the real rate.

To see how the rate and loan length change the total cost, see 15-year vs 30-year mortgages and how much a 1% rate difference costs.

This guide explains the general rules and is not financial or tax advice.