What is PMI and how much does it cost?

Private mortgage insurance (PMI) is required on conventional loans when your down payment is less than 20% of the purchase price. It insures the lender — not you — against default. PMI typically costs 0.5–1.5% of the loan amount annually, or roughly $100–$250/month on most loans. The exact cost depends on your loan-to-value ratio, credit score, and down payment size.

Is PMI worth paying to buy a home sooner?

Often yes. In markets with meaningful appreciation, the equity you gain by buying sooner typically outpaces the PMI costs. If a home appreciates 3–4% per year and you delay 3 years to avoid PMI, the price increase likely dwarfs what you would have paid in PMI. The exception is flat or declining markets where appreciation does not offset the PMI cost.

When does PMI go away?

PMI on conventional loans must be automatically cancelled when your mortgage balance reaches 78% of the original purchase price (22% equity) based on your amortization schedule. You can request cancellation earlier when you reach 80% LTV (20% equity) — either through payment of principal or because the home has appreciated. You will typically need a new appraisal to use appreciation-based cancellation.

Is there a way to avoid PMI without 20% down?

A few options: (1) Piggyback loan (80-10-10): first mortgage at 80%, second mortgage at 10%, and 10% cash down payment. You avoid PMI but pay higher interest on the second loan. (2) Lender-paid PMI (LPMI): the lender covers PMI in exchange for a higher interest rate — you avoid the obvious monthly PMI charge but pay more in rate. (3) Credit union loans: some credit unions offer no-PMI mortgages above 80% LTV.

Is FHA mortgage insurance the same as PMI?

No. FHA loans have mortgage insurance premium (MIP), not PMI. MIP has two components: an upfront premium (1.75% of loan, usually rolled into the loan) and an annual premium (0.55–1.05% depending on loan term and LTV). Critically, FHA MIP on loans with less than 10% down does not automatically cancel — it lasts for the life of the loan, making FHA loans more expensive long-term unless you refinance into a conventional loan.

Is PMI Worth It?

What PMI Actually Costs

PMI is priced as an annual percentage of your loan balance:

Loan Amount	PMI Rate (0.7%)	Monthly PMI
$200,000	$1,400/yr	$117/mo
$280,000	$1,960/yr	$163/mo
$350,000	$2,450/yr	$204/mo
$420,000	$2,940/yr	$245/mo

The exact rate depends on your credit score and down payment size:

Credit Score	Down Payment	Approximate PMI Rate
760+	10%	0.3–0.5%
700–759	5%	0.7–1.0%
660–699	5%	1.1–1.5%
Below 660	5%	1.5–2.0%+

Strong credit brings PMI costs down significantly.

The Buy-Now-With-PMI vs. Wait-for-20% Comparison

Setup: Home price $350,000. You have 10% down ($35,000). Option: buy now with PMI or wait 3 years to save the additional $35,000 for 20% down.

Buy now with 10% down:

Loan: $315,000
PMI: ~$184/month (~$2,200/year)
PMI duration (standard amortization to 78% LTV): ~8–10 years
Home value in 3 years at 3% appreciation: ~$382,000
Equity at year 3: roughly $52,000 (down payment + principal paydown + appreciation)

Wait 3 years for 20%:

Pay rent for 3 years while saving
Home price in 3 years: ~$382,000
Down payment needed: ~$76,400
PMI avoided: ~$6,600 (3 years)
Equity at year 3 after buying: ~$76,400
Net extra cost to wait: appreciation you needed to “catch up” = $32,000 price increase, minus the $6,600 PMI avoided = the delay cost you ~$25,400

In an appreciating market, premature payoff waiting is costly. The PMI was the cheaper path.

Note: This example uses a 3% appreciation assumption. In flat or declining markets, the analysis shifts and waiting may be better.

When Accepting PMI Is Worth It

PMI is worth paying when:

Home prices are rising in your area and delaying to avoid PMI means paying more for the home
Your rent is higher than it should be — you are already paying to live somewhere; PMI supplements your payment temporarily while you build equity
You want to lock in today’s interest rate — waiting may expose you to higher rates
Your savings rate toward 20% is slow — PMI may end before you would have saved to 20%
Your credit score is strong — reducing PMI to 0.3–0.5% makes it more manageable

When PMI Is Not Worth It

You are in a flat or declining market — appreciation does not offset the PMI cost
You would only pay PMI for under 12 months — if you are close to 20%, a short delay avoids it entirely
Your credit score is below 680 — PMI can reach 1.5–2%, making it expensive
The alternative is a higher rate (LPMI) — some lender-paid PMI arrangements result in a rate increase that costs more than the PMI over the long run

How to Get Rid of PMI

Automatic cancellation: PMI must be cancelled by the lender when your mortgage balance reaches 78% of the original purchase price according to the amortization schedule — even without a formal request.

Request cancellation at 80% LTV: You can request cancellation in writing once you have reached 80% of the original purchase price through payments. The lender must comply if you are current on payments.

Appreciation-based cancellation: If your home has appreciated and you believe you are at or under 80% LTV based on current value, you can request a new appraisal. This typically costs $300–$600 but can eliminate PMI years earlier if your market appreciated meaningfully.

Refinance: Refinancing into a new loan when you have 20% equity resets the mortgage without PMI. This only makes sense if the new rate is meaningfully better than your current rate — refinancing just to remove PMI rarely pencils out on the refi costs.