Private mortgage insurance (PMI): cost and cancellation
Key takeaways
04 · ideas- PMI typically costs 0.2-2% of the loan amount annually
- Borrowers can request cancellation at 80% LTV
- Lenders must automatically cancel PMI at 78% LTV under the Homeowners Protection Act
- FHA MIP has different rules and may not automatically cancel
Basic level
The essentials · 1 min
Private Mortgage Insurance (PMI) is insurance required on most conventional loans when the down payment is less than 20% of the home price. PMI protects the lender — not the borrower — in the event of default.
Cost: Typically 0.2-2% of the loan amount per year, depending on credit score and LTV. On a $300,000 loan, PMI at 0.8% costs $2,400/year ($200/month).
How it is paid:- Added to the monthly mortgage payment (most common)
- Single upfront premium at closing
- Lender-paid PMI (LPMI): lender pays the insurance in exchange for a higher interest rate
Intermediate level
How it applies · 1 min
When PMI ends
Under the Homeowners Protection Act (HPA) of 1998:
Borrower-requested cancellation: When LTV reaches 80% based on the original purchase price, you can request cancellation. Good payment history is typically required.
Automatic cancellation: Required by law when LTV reaches 78% based on original purchase price and the original amortization schedule.
Midpoint cancellation: PMI must terminate at the midpoint of the loan term (month 180 of a 30-year loan) regardless of LTV.
Extra principal payments reduce the loan balance faster, reaching the 80% LTV threshold sooner.
FHA MIP vs. PMI
FHA loans use Mortgage Insurance Premium (MIP), not PMI. For FHA loans with LTV above 90% originated after 2013, MIP is required for the life of the loan — it does not automatically cancel.
Advanced level
The math, step by step · 1 min
PMI pricing factors
PMI rates are set by mortgage insurance companies based on: LTV ratio, credit score, loan type (fixed vs. ARM), loan term, and property type. Both PMI cost and Fannie Mae/Freddie Mac Loan-Level Price Adjustments (LLPAs) affect the total cost of high-LTV conventional lending.