Mortgage Terms
What Is PMI (Private Mortgage Insurance) in Real Estate?
Private Mortgage Insurance (PMI) is insurance that protects the lender — not the borrower — if a borrower defaults on a conventional mortgage. It is typically required when the down payment is less than 20% of the purchase price. PMI is one of the most misunderstood costs in homebuying.
PMI at a Glance
What It Is
Insurance purchased by the borrower that protects the lender against default losses when the borrower has less than 20% equity. It does NOT protect the borrower.
What It Costs
Typically 0.2%–2% of the loan amount per year, depending on credit score, LTV, and loan type. On a $300,000 loan at 0.5%, PMI costs $1,500/year ($125/month) added to your mortgage payment.
When It Ends
Under the Homeowners Protection Act (HPA), lenders must automatically cancel PMI when the loan-to-value (LTV) ratio reaches 78% based on the original amortization schedule. Borrowers can request cancellation at 80% LTV.
Ways to Avoid or Remove PMI
Put 20% or more down to avoid PMI entirely
Piggyback loan (80-10-10): first mortgage at 80%, second at 10%, 10% down
Lender-paid PMI (LPMI): lender pays PMI in exchange for a higher interest rate
Request cancellation when LTV reaches 80% based on current value or original schedule
Automatic termination at 78% LTV under the Homeowners Protection Act
Refinance when equity reaches 20% (may be worthwhile if rates dropped too)
Order an appraisal to document home value appreciation that reduces effective LTV
PMI FAQ
Does FHA mortgage insurance work the same as PMI?
No. FHA loans have a Mortgage Insurance Premium (MIP) which is similar but different. FHA MIP includes an upfront premium (1.75% of loan amount) plus an annual premium (0.55–1.05%). FHA MIP cannot be canceled if you put less than 10% down — it lasts the life of the loan. This is a major reason buyers with good credit prefer conventional loans with PMI.
Is PMI tax deductible?
PMI was tax-deductible through 2021 for qualifying borrowers (income limits applied). Congress has periodically extended this deduction but it has lapsed. Check current IRS guidance or consult a tax advisor — deductibility status changes with tax legislation.
Can I get PMI removed if my home has appreciated?
Yes. If your home has appreciated significantly and your current LTV is below 80%, you can request PMI cancellation. The lender may require an appraisal to confirm the current value. You typically need to have the loan for at least 2 years and have a good payment history. Not all lenders process this the same way — review your PMI cancellation rights in your mortgage documents.
What is single-premium PMI?
Single-premium PMI lets you pay the entire PMI cost upfront at closing rather than monthly. This eliminates the monthly premium but increases closing costs. It makes sense if you have cash available and plan to keep the loan long enough to amortize the upfront cost — generally 5+ years.
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