Private Mortgage Insurance (PMI), Explained
By the TidyTally team · Last updated October 21, 2026
If you are buying a home with less than a 20% down payment, you will probably hear the letters "PMI." Private mortgage insurance adds to your monthly cost, and it protects the lender — not you. The good news is that it is not permanent on most conventional loans. This guide explains what it is, how much it can cost, and how to avoid or remove it.
What PMI is and who it protects
PMI is an insurance policy that conventional lenders usually require when your down payment is below 20% of the home's value. It protects the lender against loss if you default. You pay the premium, but the benefit goes to the lender, which is why it feels like paying for something you do not get. In exchange, it lets lenders approve borrowers with smaller down payments, which opens homeownership earlier.
What it typically costs
PMI costs vary with the loan amount, down payment, credit score and loan type. A commonly cited range is roughly 0.3% to 1.5% of the loan amount per year, divided into monthly payments. Higher credit scores and larger down payments lower the cost; smaller down payments and lower scores raise it.
For example, on a $285,000 loan (5% down on a $300,000 home), a PMI rate of 0.5% adds about $119 a month, while 1.0% adds about $238 a month. The exact figure should be on your Loan Estimate. You can add PMI to your budget in the Mortgage Calculator to see the effect on your total payment.
How PMI can be paid
Most commonly it is added to the monthly payment. Some lenders offer to collect it as a single upfront premium at closing, or a combination. Another option is lender-paid mortgage insurance, where the lender covers the cost in exchange for a higher interest rate; this can be cheaper in the short term but cannot be cancelled later, so run the numbers over how long you expect to keep the loan.
When and how PMI ends
Under the federal Homeowners Protection Act, for most conventional loans you can request PMI cancellation once your balance reaches 80% of the home's original value, provided you are current on payments and meet other conditions. Your servicer must automatically terminate it when the scheduled balance reaches 78% of the original value, and in any case at the midpoint of the loan term if you are current.
You can also ask to remove PMI sooner if the home has appreciated or you have made improvements, which typically requires a new appraisal and is subject to lender rules. Making extra principal payments gets you to 80% faster — see how amortization works in our amortization guide.
FHA, VA and other loan types
FHA loans use a different system called mortgage insurance premium (MIP), with an upfront and an annual charge, and for many borrowers it can last for the life of the loan unless they refinance. VA loans do not require monthly mortgage insurance but typically charge a one-time funding fee. USDA loans have their own guarantee fees. If you are comparing loan types, treat these costs as part of the real price.
Ways to avoid PMI
The simplest way is a 20% down payment. Others include a "piggyback" loan structure, where a second loan covers part of the down payment, lender-paid options, or special programs for certain borrowers and professions. Each has trade-offs — a second loan carries its own interest — so compare the total monthly cost, not just whether "PMI" appears on the bill.
Remember that a larger down payment is not always better if it drains your emergency fund. Paying PMI for a few years can be a reasonable price for keeping cash reserves, particularly in the first years of homeownership when surprise repairs are common.
Frequently asked questions
Is PMI tax deductible?
The mortgage insurance premium deduction has been repeatedly extended, expired and reinstated by Congress in different years, so eligibility depends on current law and your income. Check IRS guidance or a tax professional for the current year.
Can I cancel PMI without refinancing?
Often yes. On many conventional loans you can request cancellation when your balance reaches 80% of the home's original value, and it must end automatically at 78% if you are current on payments.
Does PMI apply to FHA loans?
FHA loans have their own mortgage insurance premium (MIP) rather than PMI. Depending on your down payment, it can last for the life of the loan, so compare carefully.
Is PMI worth it?
It can be if it lets you buy sooner with less cash upfront and you plan to remove it as your equity grows. It is a cost, so compare scenarios using the total monthly payment.