What is PMI and How Do You Get Rid of It?

If you've just heard the term PMI and wonder what it means for your mortgage, this guide is for you. It explains private mortgage insurance in plain language and shows you how to eventually remove it.

Quick Answer

Private mortgage insurance (PMI) protects the lender if you default on a loan with less than a 20% down payment. You pay it as part of your monthly mortgage cost. To remove PMI, reach at least 20% equity, then request cancellation, refinance, or wait for automatic termination when your loan balance drops to 78% of the original value.

How does private mortgage insurance (PMI) work?

PMI is an insurance policy that lenders require when your down payment is less than 20% of the home's price. Down payment is the cash you put toward the purchase price. The home's price is the total cost of the property. The lender is the bank or company providing the loan. Your mortgage payment includes principal, interest, taxes, insurance, and PMI if required. Your credit score influences the PMI rate. The loan amount is how much you borrow. The loan-to-value ratio (LTV) compares the loan amount to the home's value; a higher LTV means more risk for the lender.

When is PMI required on a mortgage?

PMI is required whenever you finance a home with less than a 20% down payment on a conventional loan. A conventional loan is any mortgage not insured or guaranteed by the government. Government-backed options include FHA loans, which require their own mortgage insurance premium (MIP), and VA loans, which do not require PMI for eligible veterans. USDA loans also have a guarantee fee instead of PMI.

How much does PMI typically cost?

PMI costs usually range from 0.3% to 1.5% of the original loan amount per year, depending on factors like credit score and down payment size. The premium is added to your monthly payment, so a higher loan amount or lower credit score can increase the cost. Some lenders offer an upfront premium that you pay at closing, which can lower the monthly amount but increases closing costs.

What are the ways to remove PMI from your loan?

You can remove PMI by building at least 20% equity, then requesting cancellation, refinancing, or waiting for automatic termination.

Can you avoid PMI altogether with a different loan type?

Yes, some loan programs let you avoid PMI even with a low down payment, but they may have other costs or eligibility requirements. A VA loan is available to eligible veterans and service members and requires no down payment and no PMI. A USDA loan supports rural homebuyers with low or no down payment and uses a guarantee fee instead of PMI. Lender-paid mortgage insurance (LPMI) shifts the cost to the lender, who charges a slightly higher interest rate instead of a separate PMI premium. A piggyback loan (often called an 80-10-10) uses a second mortgage to cover part of the down payment, keeping the first mortgage at 80% loan-to-value and avoiding PMI.

How do you request PMI cancellation?

Contact your lender, provide proof that your equity is at least 20%, and possibly pay for an appraisal. First, confirm that your loan balance is no more than 80% of the home's current value. Then submit a written request to your lender. The lender may order an appraisal to verify the home's value. If approved, they will stop charging PMI on future payments. You must be current on your mortgage and not have a second mortgage that affects the combined loan-to-value ratio.

Common Problems and How to Fix Them

Problem: I think I have 20% equity but my lender says PMI is still required.

Fix: Check your equity using the original purchase price or a recent appraisal, then submit a written cancellation request to your lender; they may order an appraisal to confirm the value.

Problem: My PMI premium seems higher than expected.

Fix: Review your credit score and loan-to-value ratio; improving your credit or paying down principal can reduce the cost if you refinance.

Problem: I refinanced but PMI reappeared on the new loan.

Fix: Ensure your new loan’s down payment is at least 20%; otherwise the lender will require PMI again.

Problem: I received a notice of automatic termination but PMI is still on my statement.

Fix: Contact the lender to confirm the termination date and ask for a correction; sometimes a lag occurs before the premium is removed.

Key Takeaways

• PMI protects the lender, not you, and is required when your down payment is less than 20%.
• Costs vary but typically fall between 0.3% and 1.5% of the loan amount per year.
• You can remove PMI after reaching 20% equity by requesting cancellation, refinancing, or waiting for automatic termination.
• Some loan types, like VA or USDA loans, let you avoid PMI altogether.
• Keep good records of your payments and home value to support a PMI removal request.

Frequently Asked Questions

Does PMI go away when I sell the house?

Yes, when you sell the home, the mortgage is paid off and PMI ends because the loan no longer exists. The insurance only applies while you owe money to the lender. After the sale, you are no longer responsible for any mortgage-related insurance premiums.

Can I get a refund of PMI premiums I already paid?

Generally, PMI premiums are not refundable because they compensate the lender for risk already assumed. If you cancel PMI early, you stop paying future premiums, but the amounts already paid are not returned. Some lender-paid mortgage insurance (LPMI) arrangements may have different terms, so review your loan agreement.

Does making extra principal payments speed up PMI removal?

Yes, extra payments reduce your loan balance faster, which builds equity quicker. Once your equity reaches at least 20% of the home's value, you can request PMI cancellation. Be sure to tell your lender that the extra money should go toward principal.

Is PMI tax deductible?

As of 2026, the deduction for private mortgage insurance premiums is subject to income limits and may not be available to all taxpayers. You should consult a tax professional to see if you qualify for any mortgage-related deductions on your federal return.

What happens to PMI if I refinance into a loan with less than 20% equity?

If your new loan still has less than 20% equity, the lender will likely require PMI again. The cost may differ based on your new credit score and loan-to-value ratio. Always calculate the break-even point before refinancing, and consider whether the new rate and fees outweigh the benefit of dropping PMI.

How long does it usually take to reach 20% equity?

The timeline depends on your down payment, home price appreciation, and how much extra principal you pay each month. With a standard 5% down payment and average market growth, many homeowners reach 20% equity in five to seven years, but it can be shorter or longer.

Talk to Edi

If you have more questions about PMI or mortgage options, reach out to Edi Shek for personalized guidance. Edi Shek is a licensed mortgage loan originator in 14 states and can help you navigate the process.