Will I Pay PMI, and When Can I Stop?
Will I Pay PMI, and When Can I Stop?
Understanding PMI and Why It Exists
Private Mortgage Insurance (PMI) is often an unwelcome surprise for first-time homebuyers, but it plays a significant role in today’s mortgage landscape. PMI is typically required when a borrower puts down less than 20% on a conventional loan. Lenders use PMI as a safeguard, protecting themselves in case the borrower defaults on the loan.
The monthly cost of PMI can vary, usually ranging from 0.3% to 1.5% of the original loan amount per year. For example, on a $300,000 loan, PMI could add anywhere from $75 to $375 to your monthly mortgage payment. While that might not break the bank, it’s still a cost most borrowers would prefer to avoid—or eliminate as soon as possible.
When You’ll Be Required to Pay PMI
PMI is generally required for:
Conventional loans with a down payment of less than 20%
Certain refinance loans where the borrower has less than 20% equity
Borrowers with lower credit scores or higher debt-to-income ratios, even if near the 20% threshold
Importantly, PMI is not the same as mortgage insurance for FHA loans, which is known as MIP (Mortgage Insurance Premium). MIP has different rules and may not automatically go away unless the loan is refinanced into a conventional mortgage.
How to Stop Paying PMI
The good news: PMI doesn’t last forever.
Here are the most common ways PMI can be removed:
Automatic Cancellation at 78% LTV
Federal law requires lenders to automatically cancel PMI once your loan-to-value (LTV) ratio reaches 78% of the original purchase price, assuming you're current on your payments. This means you’ve paid down 22% of your home’s original value.Request Removal at 80% LTV
You don’t have to wait for automatic cancellation. Once you believe your LTV has reached 80%, you can request PMI removal in writing. Most lenders will require a home appraisal to confirm your property value hasn’t declined.Refinancing to Eliminate PMI
If your home has appreciated significantly, refinancing could be a smart move. A new appraisal might show that you now have more than 20% equity—enough to qualify for a PMI-free loan. Keep in mind that refinancing comes with closing costs, so it’s not always the cheapest option upfront.Home Improvements That Boost Value
Renovations can also help. If you’ve added square footage, remodeled a kitchen, or made other value-enhancing improvements, your home's value may increase enough to hit the 20% equity mark.
Proactive Tips for Homeowners Paying PMI
If you’re currently paying PMI, consider these strategies to accelerate its removal:
Make extra principal payments to build equity faster.
Monitor home values in your area. Rising prices may push your equity over the threshold.
Schedule an appraisal if you believe your equity has reached 20%, especially after making major upgrades.
Refinance strategically, especially if rates drop or your credit score improves.
Final Thoughts
PMI isn’t forever, and it’s not necessarily a bad thing. In many cases, it enables buyers to enter the housing market sooner without needing a massive down payment. Still, knowing when and how to remove PMI is essential for long-term savings.
If you’re planning a home purchase or already have a loan with PMI, keep an eye on your loan balance and home value. Being proactive could save you thousands over the life of your loan—and help you feel more in control of your mortgage journey.
Sources
Forbes – https://www.forbes.com
Investopedia – https://www.investopedia.com
NerdWallet – https://www.nerdwallet.com
CBS News – https://www.cbsnews.com
U.S. Consumer Financial Protection Bureau – https://www.consumerfinance.gov
